If used correctly, the PPSR can provide a platform for security interests to be registered and made public to anyone who wishes to search against a grantor or registration number. However if we fall victim to a PPSR faux pa, we face the ultimate risk - having an invalid registration.
Do you have all of the relevant details of the grantor?
When registering a security interest against a company grantor, it is important that the Australian Company Number (ACN) of a proprietary company grantor is inserted, and not the Australian Business Number (ABN). If the grantor is not properly identified the registration may be void.
Have you correctly registered a Purchase Money Security Interest (PMSI)?
The system of priorities is important, but with great power comes great responsibility. To be afforded the PPSR “super power”, that is a super priority, the security interest must fall within the definition of a PMSI.
Section 14 of the Personal Property Securities Act 2009 (Cth) (PPSA) sets out the definition of a PMSI as:
A security interest taken in collateral, to the extent that it secures all or part of its purchase price (i.e. this will arise in the case of a retention of title clause);
A security interest taken in collateral by a person who gives value for the purpose of enabling the grantor to acquire rights in the collateral, to the extent that the value is applied to acquire those rights;
The interest of a lessor or bailor of goods under a PPS lease;
The interest of a consignor who delivers goods to a consignee under a commercial consignment.
If a security interest is NOT a PSMI but has been registered as a PMSI, the registration will be deemed void.
Out of time? Out of luck!
If a security interest is registered more than 20 business days after the security agreement was created, then the registration will be set aside if the grantor becomes insolvent within six months of the date of registration.
Serial numbers – check, double check, and have your colleague check it too!
Motor vehicles, watercraft, aircraft and certain intellectual property rights (patents, trademarks, designs and plant breeder’s rights) must be registered against the serial numbers. An error in the serial number may render a registration seriously misleading and therefore void.
Is the grantor a corporate trustee?
Ensure that your credit application or security agreement requests all relevant information from the grantor – including whether the grantor is a trustee of a trust. Where the grantor is a trustee of a trust that has an ABN and holds the relevant personal property in their capacity as trustee, the registration should identify the grantor by reference to the ABN of the trust.
Young hearts, take free – or do they?
Under the general rule, a buyer or lessee who acquires property in the ordinary course of the seller’s business can acquire the property free of any security interest that may have been granted by the seller. This seeks to protect the interests of a bona fide purchaser. An exception however will arise where the buyer holds the property as inventory after the sale.
Is the good a fixture?
The PPSA does not apply to an interest in a fixture. In determining whether property falls within the definition of ‘fixture’, as a general rule the courts have regard to:
Whether the item will be in position temporarily or permanently;
The function and purpose of affixing the item to the land or building;
Whether removal would cause damage to the land or building;
Whether removal would destroy or damage the attached item; and
Whether the cost of renewal would exceed the value of the attached item.
Possession is 9/10th’s of the law
Ownership does not always trump possession. If a company enters into administration or liquidation and at the time of appointment is in possession of an item to which a security interest has attached but has not been registered, that item will vest in the company. The ‘owner’ of the goods will become an unsecured creditor for the purposes of the administration or liquidation.
Put the script in your description
You must ensure that the description included in the registration is sufficient enough for the goods to be identified as property of the secured party to which the registration relates. This is particularly important in circumstances where a secured party wishes to seize their goods following the appointment of an administrator or a liquidator.
What is inventory?
The check-box options during the registration process can cause confusion for most. Simply checking goods as “inventory” when the goods are not inventory at the time of supply may result in a defective and potentially void registration.
Whether personal property is inventory also plays a significant role in registration of a PMSI. A PMSI only has super priority for inventory if registered prior to the grantor obtaining possession of the goods.
We have seen it time and time again where PPSR has caused major losses and could have been avoided.
For advice on PPSR contact Dajana Malnersic or Kylie Tate on 02 9234 1500.