Personal Property Securities Register
TABLE OF CONTENTS
The Personal Property Securities Act 2009 (Cth) (“PPSA”) regulates personal property security interests. The PPSA sought to create consistency among federal and state governments, implementing a national regime and replacing the fragmented pieces of legislation that existed across the country. The Act has significantly reformed the law of personal property security in Australia.
A security interest is a right that is created in personal property through a ‘security agreement’ between two or more parties, which can be registered on the Personal Property Securities Register (“PPSR”). Examples of security agreements include:
- Fixed and/or floating charges or general security agreements over company assets;
- Secured car loans; and
- Hire-purchase agreements for goods.
A security interest secures payment or performance of an obligation. It is a legal right that is granted to the secured party, allowing them to have recourse to the property in the case that the grantor defaults on payment or performance, or is declared insolvent. For example, a security interest is created when a lender (secured party) loans money to a borrower (grantor), in exchange for a security interest in an asset. This means that the security interest attaches to the asset and thus, the secured party gains a claim over the relevant asset.
It should however be noted that a security interest does not equate to an ownership interest. It is also worth noting that a written agreement which creates the security interest should be created and kept, as it can serve as a device which helps avoid disputes between parties and may enable you to enforce your interest against other competing interests in the property.
Deemed Security Interests
In addition, under the PPSA, it is possible for certain transactions to be deemed to create a security interest, even though such transactions do not set out to secure payment or performance of an obligation. Examples of deemed security interests include:
- Interest of a consignor (delivers goods to the consignee) under a commercial consignment of goods;
- Interest of a lessor or bailor of goods under a lease or bailment with a term of more than two years; and
- An interest of a transferee under a transfer or account.
Personal property includes all forms of property, except land, buildings and fixtures. This type of property encompasses tangible objects and certain intangible legal rights. Personal property can in some regard be thought of as property which is movable, namely that it is not permanently affixed. Examples of personal property include:
- Vehicles (including cars, boats and aircrafts);
- New or second-hand goods;
- Business inventory and equipment;
- Intangible property (such as intellectual property, including patents and copyright, or commercial licences; contractual rights; and debts); and
- Shares, bonds, stocks and debentures.
As a result of the enactment of the PPSA, the PPSR came into force on 30 January 2012. The PPSA and the Personal Property Security Regulations 2010 (Cth) regulate and administer the register. The PPSR is the official government register which records the registration of all security interests in personal property. The register is always available online and is accessible by the public. This means that anyone can search the register at any time. It should however be noted that each search performed through the register costs $2. It is also important to remember that the register should not be thought of as a register of property ownership.
Though a secured transaction regime was in existence prior to the introduction of the PPSR, the implementation of a single national regime has created further benefits. The enablement of real-time information sharing; the possibility to register interests that could not previously be registered; and greater certainty and transparency due to consistent application of rules and regulations are just some of these benefits.
Who can register?
It is possible for anybody to register their security interest on the PPSR. This includes individuals, businesses, and other organisations. Most commonly, the person with the security interest will register. This may include the lender in a loan arrangement; the credit provider if they have provided certain goods on credit; and the lessor in a lease arrangement.
When should you register?
It is best to register on the PPSR as soon as possible. This may be at the time you form a security agreement. It is important to keep in mind that protection starts at the time of registration and that if there is more than one registered security interest in existence, the priority order is from the earliest registration. Additionally, you should remember that there are PPSR timing rules, which may set time limits on registration and limit the protection afforded under the PPSA accordingly.
Why should you register your interest?
Registering your interest not only puts the public on notice that you have an interest in the property, but it also creates additional rights in the property and offers greater legal protection.
It may not always be sufficient to simply have a written agreement made between the parties, which states the security interest. To gain complete legal protection offered under the PPSA, the security interest may need to be registered.
A registered security interest may prove critical if a debtor goes insolvent. Registration enables an insolvency practitioner to find you and include you on the priority list for repayment. If multiple creditors are involved, this will provide you with greater priority over those with an unregistered interest, who will most likely be an unsecured creditor. This means that if there are not sufficient funds to cover all debts, creditors with a lower ranking may miss out, as secured creditors are generally paid first.
Reasons why you cannot register?
It is important to remember that simply because someone owes you money, does not give you a security interest in a good or asset. To be able to register the security interest on the PPSR, there must exist a valid agreement between the relevant parties that creates the interest.
Though the PPSR contains a noticeboard of security interests in personal property. It is important to remember that exclusions do apply. It is not possible to register security interests on the PPSR in the following:
- Rights or entitlements granted by the Commonwealth or an State or Territory; and
- Government-issued licences (for example, taxi licences, liquor or mining licences).
Attempting to register a security interest when you do not have one, amounts to misuse of the PPSR. Such misuse may be found to breach the law and penalties may apply accordingly.
When is the PPSR useful?
The PPSR can be used by individuals, businesses and creditors to give notice to the public of the interest that they have in a particular good or asset. The register also enables consumers, businesses and financial institutions to check whether there are existing security interests in the relevant property. Examples of scenarios where the PPSR may prove useful include the following:
You are interested in buying a second-hand vehicle from a private seller. The seller chooses not to disclose that they still have finance owing on it. You decide to ask them a few questions about the vehicle, but the seller still does not disclose their existing obligation. You choose to rely purely on your own judgment and do not perform any checks. A few months later, the seller stops making repayments and the vehicle is repossessed by the finance company.
A $2 PPSR search can help you determine whether there are any existing security interests in the vehicle; whether it is debt free and safe from repossession by a creditor; and whether it has been reported stolen or has been previously written-off.
Your friend asks you to loan them $100,000, on the basis that you will receive a security interest in their luxury yacht. You know that the yacht has a much greater value than your loan and you are confident that you can recoup the value of your loan.
In this case, you should perform a PPSR search to determine whether there are existing interests in the property. For instance, the yacht may have been used as security for previous debts or obligations. This could mean that in the event that your friend goes bankrupt, the value of the yacht may not be enough to pay off all the debts and you may miss out on recovering your $100,000.
Carter Constructions Pty Ltd (Carter) is a construction company which lends approximately $500,000 to Builder Equipment Pty Ltd (Builder Equipment). The loan is created through the execution of a deed between the parties. Though the parties intend for a security interest to be created, the parties fail to execute a security agreement and do not properly register the security interest. Builder Equipment becomes insolvent, and a liquidator is appointed.
Carter claims that it has a security interest in Builder Equipment’s assets, arising from the deed. However, Carter has not registered its security interest and is thus an unsecured creditor. Other creditors (such as BC Bank) have registered their security interests and are secured creditors. They will therefore have priority over Carter in recouping the value of their loans. This may mean that Carter will have to bear the loss of $500,000. Had Carter registered the interest, they would have been able to enforce their right as a secured creditor and recover the money owed.
It is strongly recommended that you speak to a legal professional and ensure that you comply with the necessary requirements and that your security interests are adequately protected. Our team at MC Lawyers & Advisers can assist you with this and help you avoid potential losses that may be incurred.