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What you should know about the PPSR

The Personal Property Securities Register (PPSR) commenced on 30 January 2012. Significant elements of commercial law now come under a single, national system of secured lending and purchasing.

Companies and small business owners operating in the building and construction industry will need to review their credit and risk management practices in consideration of the new national law. The Personal Properties Securities Act 2009 (Cth) (PPS Act) may affect business practices and documentation requirements concerned with secured finance.

Your business may be affected if, for example, you:

  • supply goods on credit under retention of title arrangements
  • use equipment leases
  • provide fleet management services, and/or
  • provide fleet rental services.

Using the PPSR enables you to protect your position in the event of debtor default or insolvency.

What is the PPSR?

The cornerstone of the reform is a new national register of security interests in personal property. The PPSR is a national online notice-board for registering security interests in personal property.

The PPSR holds migrated data from 24 decommissioned Commonwealth, State and Territory sources, including the ASIC Register of Company Charges, Bills of Sale Registers and the security interests in vehicles registers such as REVS (Registers of Encumbered Vehicles) and Vehicle Securities Registers. The PPSR replaced these former registers.

Importantly, the PPS Act does not require separate registrations to be made in respect of all supplies or leases to the same buyer or lessee. A single registration on the PPSR may cover subsequent security interests in property that is supplied under later agreements. However, in all cases registration is a choice of the secured party and is not mandatory.

Personal property is the key

‘Personal property’ is generally all property other than land, fixtures and certain statutory interests. Importantly, interests in fixtures are specifically exempt from the operation of the PPS Act.  Fixtures are goods, other than crops, that are affixed to land. Personal property includes tangible property such as cranes, scaffolding, inventory, machinery, plant and equipment (such as excavators and graders) cars, boats, and also intangible property such as licences, shares, intellectual property and accounts receivable. 

What is a security interest in personal property?

A security interest is an interest in personal property that in substance secures payment of a debt or performance of an obligation regardless of the form of the transaction.  It covers standard forms of security such as mortgages and charges. It also covers some transactions that were not traditionally regarded as creating security interests, in particular:

  • retention of title (RoT) clauses in contracts whereby a purchaser has possession of property, but does not acquire title from the vendor until the full purchase price is paid, and
  • operational leases of personal property for a term exceeding 12 months. ‘Motor vehicle’ has a particular definition set out in the PPS Regulations.

What is a grantor?

A ‘grantor’ is a person who has ‘granted’ a security interest in the personal property. A grantor may have been previously referred as the borrower, mortgagor or charger. It might also be a person who receives goods under a commercial consignment, a lessee under a PPS lease or a transferor of an account or chattel paper.

A new concept: PPS Lease

A new concept that significantly affects equipment hire and fleet management arrangements is the PPS lease.

A ‘PPS lease’ may arise from certain leases, or bailments, of personal property. A bailment of property may occur when it is left in the possession of a party that is not the owner of the property, usually with an implied promise that it will be returned to the owner. For example, a subcontractor may leave tools or equipment on a site controlled by the principal contractor. 

A ‘PPS lease’ is a lease or bailment that is regarded as creating a security interest in the property leased or bailed when the arrangement is for:

  • an indefinite period; or
  • a term or terms of one year or more for most goods

However, an agreement for shorter periods will be a PPS lease where the lessee or bailee continues to retain substantially uninterrupted possession of the property with the lessor’s or bailor’s consent after one year. The PPS lease treats leases and bailments with a lease period for a term of more than one year as security interests.

It is important to note that a PPS lease will only arise in relation to particular leases and bailments.  For example, a lease or bailment will not be a PPS lease if the lessor or bailor is not regularly engaged in the business of leasing or bailing goods or does not receive value, for example by payment, for the bailment. Bailments will only become PPS leases where it can be said that the bailor received value (usually by payment) in exchange for the bailment of the property.

Persons who grant a PPS lease over property should consider registering their lease on the PPSR to protect their interest. For further general information about PPS leases please refer to leases and bailments.

Why register retention of title arrangements? (RoT)

The main benefit to RoT suppliers or lessors under PPS reform is that the PPS Act provides clear rules to be followed in order for RoT suppliers or lessors to protect themselves, in the event of a buyer’s or lessee’s default or insolvency . However in order to maximise this protection the secured party must register their security interest in the property supplied or leased.

Under the PPS Act, RoT suppliers and lessors enjoy the benefit of what is known as PMSI super priority. This means that a registered security interest of a RoT supplier or lessor takes priority over all other, including earlier, security interests in the collateral where the requirements of the PPS Act have been complied with.  Note that PPS leases are also PMSIs.

A second benefit of a registered RoT or lease-based security interest is the protection it offers against a trustee in bankruptcy or liquidator.

Under pre-PPS Act law, retention of title clauses have often been ineffective when disputed by a liquidator, as the focus was placed on the form of words used in the clause. Under the PPS Act, a registered security interest in the property supplied or leased means that the property will not be available to a trustee in bankruptcy or a liquidator.

PPS transitional provisions

For more information on the PPS transitional provisions including transitional security interests and migrated registrations please see ‘Transitional provisions’.

Professional advice recommended

PPS could affect you or your business in a number of different ways.  You should seek professional advice in relation to your specific circumstances.