The Personal Property Securities year in review

December 13, 2016

and why it is time for a Personal Property Securities (PPS) health check

The Personal Property Securities Register (PPSR) is the single, national register where security interests in personal property can be registered and searched.

We are now approaching its 5th anniversary, but people are still getting things wrong. Who can forget one of the most well-known decisions in 2016, The Forge Group v GE [1]? In this case, the court decided that a lease of turbines by GE to Forge constituted a “PPS lease”. As GE did not register its interest on the PPSR, its interest in the turbines vested immediately before the appointment of the administrators in Forge.

Currently, it costs $6.80 to register a security interest on the PPSR where the duration is 7 years or less. The PPSR fee is $34 for a registration between 7 and 25 years and $119 for a registration with no stated end time. As you can see, the cost of registration is small, compared to the loss of a $60m security in the case of GE.

Case law has confirmed many times over that the overall importance of registration and the potentially significant consequences of failing to do so. This is why secured parties, even not mandated by legislation, register their security interest on the PPSR. It is no surprise that there are 9,147,536 current registrations on the PPSR[2].

As we prepare for the new year, now is a good time for a PPSR health check. You should register all security interests, and don't forget to seize any opportunity to maximise your priority position by registering within the prescribed timeframes.

Where there are multiple secured parties, the priority rules in the legislation decide which secured party ranks higher and hence can be paid out first. The general rule is first in best dress. The main exception to this is a purchase money security interest (PMSI). If property registered, a PMSI gives priority over earlier registered security interests over the same collateral. Generally, a lease of goods for over a year (or which may last more than one year, or is for an indefinite period) will qualify as a PMSI.

Time is of the essence for PMSI registrations. For goods that your customer is going to use as equipment, you should register within 15 business days of delivering the goods to the customer. In practice, you probably should register as soon as you enter into any dealings with a new customer for the leasing of goods, ahead of any deliveries. If the goods are to be used as inventory, the timeframe is tighter; you need to register before delivery of the goods.

There are also other registration requirements. For example, you need to tick the right boxes, including “commercial property”, whether there are proceeds to be claimed, and importantly, you need to tick the “PMSI” box. SAI Global can help you make sure you have an effective PMSI and protect you as secured party.

Start the New Year on the front foot and register to attend a 30 minute webinar “PPS tips for the New Year”.

[1] Forge Group Power Pty Ltd (in liquidation) (receivers and managers appointed) v General Electric International Inc [2016] NSWSC 52

[2] As at 30 September 2016, being the time period of the most recent PPSR quarterly statistics released by the Australian Financial Security Authority