In our recent webinar ‘Practical PPS for 2018’ we looked at a recent judgement, P Twin Holdings Pty Limited v SG Old Pty Limited  WADC 77. We look at the key insights and the webinar poll question results.
PPS tip: consider registering your security interest when you have reasonable grounds to believe you would become a secured creditor
The Personal Property Securities Act 2009 (Cth) (PPS Act) turned 6 on 30 January 2018. In last week's 'Practical PPS for 2018' webinar, we looked at a recent judgement, P Twin Holdings Pty Limited as Trustee for the P Twin Trust v SG Old Pty Limited  WADC 77 (available here at AustLII), where a lawyer was found negligent to a client for failing to register a security interest in the manner prescribed by the PPS Act. We looked at the lessons learnt, so they are not lessons lost.
One of the key lessons from this judgement is that the registration of a financing statement on the PPS Register is not conditioned upon the execution of any documents, such as a loan agreement or a general security deed. Almost 80% of the webinar attendees were unaware that you could register a financing statement before any formal agreement to create the security interest is executed. This is a good example of how many of us may not be aware of how some parts of the PPS Act operate, and there is a risk that our security interests are either not perfected or perfected out of time, making the security interests the subject of disputes.
Fact - formal agreement is not a prerequisite to perfection by registration
Under the PPS Act, it is possible to register a security interest before any formal agreement to create that security interest is executed. All that is required for registration is that the person undertaking the registration forms the belief, on reasonable grounds, that the security interest will be created. This important protection for secured parties can be found in section 151 of the PPS Act.
While registration is not mandatory under the PPS Act, it has obvious advantages. Registration is the most common way to achieve perfection, which brings with it two main benefits to the secured party. First of all, it defines the priority status the security interest has relative to other security interests in the same collateral. Second and importantly, it helps ensure the security interest survives the bankruptcy or insolvency of the grantor.
While on the topic of PPS registrations, the Australian Financial Security Authority (AFMA) publishes quarterly statistics on the operation of the PPS Register. The statistics for the December quarter in 2017 have just been released, and you can read AFMA's commentary here.
When to register - when you have reasonable grounds
It would be prudent for an entity to consider registering a financing statement when it has reasonable grounds to believe it would become a secured party to the collateral, even if documents are yet to be prepared or yet to be signed. However, do remember that if the expectation of becoming a secured party proves to be unfounded, the entity must end the registration within 5 business days, or a civil penalty applies.
In the meantime, read more about the PPSA and the PPSR in SAI Global's industry news, including:
- Personal Property Securities “extension of time” cases - what can we learn from them?
- PPS lesson: register your leases or risk your interest being surpassed
SAI Global has helped many customers develop strategies to manage registrations on the PPSR, including to make registrations in a timely manner.
If you'd like to hear more about how SAI Global can make PPS registrations and searches easy for you contact us or take a look at Encompass (watch this space for the new look Encompass coming early March 2018!)