Many business owners are facing unprecedented times in the current economic climate which they have little or no control over. However, there is one thing that is within your control that you can do to protect your business - register your personal property interests on the PPSR!
If you aren’t convinced, I invite you to answer the following questions:
Do you provide goods to a customer or client without getting paid upfront in full?
Do you consign goods to a distributor to sell on your behalf without the distributor paying for all the goods first?
Do you lease, rent or hire out equipment to customers and invoice them regularly during the hire period?
Do you lend money or give credit and take security for this over your customer’s assets?
If you answered yes to one or more of these questions, then you should be using the PPSR.
Why do you need to register your interests on the PPSR?
If your business doesn’t register its interests on the PPSR and one of your customers becomes insolvent then your goods in the customer’s possession can be scooped up by an external administrator and sold off to pay a secured creditor (i.e. not you).
However, this doesn’t mean that you can simply register your interests in your goods on the PPSR at any time. No, you need to register your interests in the goods as early as you can, so your interests have the best chance of being “first in line” against other creditors.
An important exception to the “first in line” rule is the “Purchase Money Security Interest” (PMSI). The PMSI is a “super priority” interest that gives priority over already registered security interests. A PMSI can be claimed for leases/hires that are for two years or more, or contracts for selling goods that contain a retention of title clause.
When should you register your PMSI interest?
There are different timeframes for registering a PMSI interest.
Customer’s inventory: if the goods supplied will form part of your customer’s inventory (i.e. stock to sell or lease) you must register your PMSI interest before the customer gets possession of the goods.
Equipment: if the goods supplied to your customer will be used as equipment (i.e. not inventory) then you must register your PMSI interest within 15 business days of the customer taking possession of the goods.
If the PMSI interest is not registered within these timeframes, an ordinary security interest will be created which is subject to the “first in line” rule and will fall behind other already existing secured creditors.
What if you don’t have a PMSI interest?
If the lease/hire period is for less than 2 years, or if there is no retention of title clause in a contract for the sale of goods, you can and should register a general security interest over the goods. The timeframe for registration is 20 business days after the date of execution of the security agreement. If the security interest is not registered within this timeframe, you will be an unsecured creditor if your customer becomes insolvent within 6 months of your registration.
How much does it cost to register?
$6.00 for up to 7 years
$25.00 for up to 25 years
$115.00 for an indefinite period.
Takeaway message
Register your interests on the PPSR as soon as possible. Implement procedures that make PPSR registrations a regular part of the contractual process. Maybe create the role of a PPSR champion for your business!
We’re here to help
If you need any help with identifying what personal property needs to be registered or you would like help or training on establishing PPSR procedures, please don’t hesitate to contact us.