If your business has entered into a commercial arrangement for the supply of your personal property, you may be able to protect your interest in that personal property by registering a security interest on the Personal Property Securities Register (PPSR).
Amidst increased awareness of the benefits of the PPSR, more of our clients have been asking to register a security interest on the PPSR to protect their interest and, where possible, ensure it is prioritised over the interests of third parties.
Steps for securing your interest
1. Does your agreement create a security interest?
An agreement creating a security interest typically takes the form of a contract, whereby the lender hands over personal property in exchange for payment or performance of an obligation. Certain agreements such as leases, bailments and consignments usually create a security interest and, as explained below, can potentially create a special type of security interest known as a purchase money security interest (PMSI).
2. Is your personal property capable of registration on the PPSR?
Personal property is essentially all property other than land and federal or state-granted rights, entitlements or authorities (such as water rights or government-issued licences).
3. Create a PPSR account and activate your secured party group
To register a security interest on the PPSR, you must create an account with the PPSR and a secured party group (SPG).
Your SPG should comprise each person or company who has an interest in the secured property.
Every SPG is provided a bespoke access code to identify and manage its registrations. It is typical for a company to maintain multiple SPGs to account for situations where a company has multiple agreements involving different secured parties.
4. Application for registration
The PPSR application will ask you to describe the personal property and the security interest you are seeking to register.
The collateral type is either ‘consumer property’ – namely, private property used for commercial purposes, such as a privately owned vehicle – or ‘commercial property’ – being commercial property used for commercial purposes.
The collateral class assigns the personal property to one of the following categories – ‘tangible property’, ‘general property’, ‘intangible property’ or ‘financial property’. Depending on the collateral class selected, there may be sub-classes and further information required for effective registration.
When describing your security interest, consider whether the agreement creating your security interest is capable of registration as a PMSI, as this will give you priority over third party security interests in the personal property (without regard to the time at which the registrations occurred). If, however, you register your interest as a PMSI when it is not, your registration will not be effective.
The PPSR will ask you further questions to determine what rules apply to your security interest. For example:
- whether the registration is transitional (transitional registrations concern security interests that existed before 30 January 2012);
- whether the registration is subordinate to another registration;
- whether the collateral forms part of the grantor’s inventory (such as raw materials to be consumed or on-sold);
- whether the collateral is subject to your control (that is, whether you are in possession of the collateral or the grantor requires your consent before dealing with the collateral); and
- the duration of registration.
5. Timing for registration
For registrations where the grantor is a corporate entity, ensure your security interest is registered on the PPSR within 20 business days after signing the agreement (or, where the grantor becomes insolvent, no more than 6 months before the grantor declares insolvency).
The timing rules for PMSIs depend on whether the personal property supplied to the grantor forms part of the grantor’s inventory (e.g. products consumed or on-sold as part of the grantor’s business). If the personal property will form part of the grantor’s inventory, register your interest as a PMSI before the grantor obtains possession. If the personal property does not form part of the grantor’s inventory, you have 15 business days from the date the grantor obtains possession or your personal property.
6. Remember to notify the grantor
Once the registration has been completed, the PPSR will issue a verification statement as proof of your registration. Unless the grantor has agreed to waive its right to receive a copy of the verification statement (which would only apply for registrations relating to commercial property), the grantor is entitled to receive a copy of the verification statement as soon as is reasonably practicable after registration.
