Read our case study about a jewellery designer who uses the PPSR to help protect his interest in the jewellery he sells by consignment to another business.
What may be affected?
consignment arrangements with a gallery or dealer
sales to gallery or dealer on retention of title (ROT) terms
buying valuable second-hand equipment.
What is not affected?
land, which includes fixtures to land.
How does it benefit my business?
To protect your security interest when leaving your artwork regularly on consignment with a particular gallery or dealer for them to sell the work on your behalf, (or if you sell any goods on retention of title terms), you should do the following:
- ensure you have a written consignment contract with your gallery or dealer that broadly describes the goods you have consigned, for example, ‘artworks’;
- register your security interest on the PPSR.
Registration is not compulsory, but it protects your security interest against other creditors. Properly registering your interest can help protect your interest in the event that the gallery or dealer doesn't pay and goes broke.
Risk: If you don’t make a registration against the gallery or dealer and they go broke before they have fully paid you, your artwork may be sold to pay other creditors first.
If you have not registered to protect a retention of title (ROT) arrangement, you will be an unsecured creditor in an insolvency and may not recover much, if anything, of what you are owed.
In the case of consignments, whilst most (those which are ‘commercial consignments) will still be effective on insolvency even if not registered, you should still register them anyway because you don’t want to lose out to other registered security interests, and you do want to have PMSI priority over those other interests, as described above.
Note: If your artworks are being sold or resold through an auction house then the PPS rules don’t apply.
A single registration can cover all consignments that an artist makes to a particular dealer or gallery – each artwork is not required to be registered individually.
In order for one registration to cover all future art consignments, the description of the art in the registration must be broad enough to cover all the property involved, for example ‘artworks’.
When buying goods – searching the PPSR can help you make an informed decision. You can check whether the valuable second-hand goods you want to buy, such as a mig welder or other equipment, are being used as security for a debt or other obligation.
If you are leaving your artwork on commercial consignment or retention of title, you may be able to claim a purchase money security interest (PMSI), since a commercial consignment and a retention of title agreement are included as PMSIs.
Even though the normal priority is ‘first in time, first in line’, a PMSI will enable you to be first in line even if someone (eg a bank with security over the gallery’s business assets) registered earlier than you.
To be able to have this ‘super priority’ over earlier registered interests in that property, you need to register that you are claiming as a PMSI and you need to do so before you deliver your artwork or other materials.
Financiers can view interests registered against your goods, and that makes it easier for them to decide whether or not to lend to you.
As a supplier or consignor, the PPSR gives you more comfort that your interest and outstanding debt is better protected and visible to those searching the PPSR who wish to deal with your customer or consignee.