Registering security interests on the PPSR18 September 2023
- When supplying goods or services, taking a security interest is a good way to ensure you receive payment in the event your customer or client becomes insolvent.
- Registration is important to ensure that your security interest is valid and enforceable as a matter of law. It is also important in determining which secured creditor has priority. A failure to provide the necessary details in your financing statement or to lodge it within the prescribed timeframe may mean that the priority of your security interests diminishes.
- If you fail to register your interest you have a high risk of losing your claim or interest over the secured property to others who have registered. It is also critical to monitor registrations to ensure that they are valid and to undertake renewals within the timeframe where required to avoid the losing your interest over the registered property.
When supplying goods or services, taking a security interest is a good way to ensure you receive payment in the event your customer or client becomes insolvent.
It is a common misconception that security agreements and retention of title clauses will guarantee a party’s right to realise secured assets when other contracting parties are unable to meet their debts.
In our sixth episode in this series, we discuss the importance of formally registering a security interest on the Personal Property Securities Register (PPSR) as a critical step in protecting your right to enforce a security interest.
What is the PPSR?
Created by the Personal Property Securities Act 2009 (Cth) (PPSA), the PPSR is a centralised public listing of all security interests claimed over personal property in Australia. The PPSR is, in effect, a public notice board. By registering security interests on the PPSR, other interested parties are aware of those interests.
What is personal property?
‘Personal property’ includes all property except land and rights, entitlements or authorities excluded by or under a law of the Commonwealth, a state or territory. Personal property includes a range of tangible property, for example, livestock or vehicles, as well as intangible property, such as copyrights and trademarks. It will include things like cash, stock, office equipment, cars, boats, furniture, and machinery.
What is a security interest?
A security interest is an interest in personal property that arises in the context of a transaction, where payment or performance of an obligation is secured. The registration of a security interest over personal property or an asset will protect your interest against other parties (for example, liquidators) who seek to also claim an interest in the same property.
Common examples of security interests may include hire purchase agreements, consignments, leases of goods, fixed and floating charges and conditional sales agreements. It is now common take security over personal property under a General Security Agreement. The person or organisation who grants a security interest in a transaction is known as a ‘grantor’, while the party who obtains the security interest is known as the ‘secured party’.
It is important to note that not all transactions of this nature will give rise to a security interest. For instance, certain licences will not be considered to be security interests.
Why should I register my security interest?
Registration is important to ensure that your security interest is valid and enforceable as a matter of law. It is also important in determining which secured creditor has priority in enforcing against the grantor’s assets.
How do I register my security interest?
The registration of security interests can be a complex process. A failure to provide the necessary details in your financing statement or to lodge it within the prescribed timeframe may mean that the priority of your security interest diminishes, preventing you from realising the secured property if enforcement becomes necessary.
It is possible to register a security interest yourself following the instructions on the PPSR website, but if you are registering complex or particularly significant security interest or will need to make a large number of registrations, we recommend consulting a lawyer to ensure that you get the registration right.
What happens if I don’t register my interest?
It is critical that a security interest you are entitled to is registered over an asset on the PPSR. Failing that, any interest in personal property will remain ‘unperfected’ and there is a high risk of losing your claim or interest over the personal property to others who have registered. Unperfected interests carry a lower priority than those interests that have been ‘perfected’ through registration and allow other parties to assert a stronger claim over the relevant property.
What happens if more than one security interest is registered?
In circumstances where multiple security interests are registered in respect of the same property, the secured creditor with the highest priority will have first right to enforce over the secured assets. The perfection of a security interest by registration will affect the priority of your interest over others in the same property.
‘PMSI’ and ‘perfected’ interests
The highest priority security interest is a purchase money security interest (PMSI). Generally speaking, a security interest is a PMSI if the grantor used the funds provided by the secured party to acquire the relevant property. A ‘retention of title’ provision in an agreement for sale of goods, for example, will give rise to a PMSI and will need to be registered.
A PMSI has a ‘super priority’ over all other registered security interests, including those registered earlier than the PMSI itself.
To have the benefit of this super priority, a PMSI must be correctly registered and identified as a PMSI, within a certain period of time – a PMSI over tangible collateral, for example, must be registered before the grantor obtains possession, whereas a PSMI over non-inventory tangible property must be registered within 15 business days of the grantor taking possession. If it is registered correctly but not explicitly identified as a PMSI, or is registered outside of the prescribed timeframe, it loses its status as the highest-ranking security interest and merely becomes a ‘perfected’ interest (which is a security interest constituted by a written agreement and validly registered on the PPSR).
A security interest is otherwise generally ‘perfected’ upon registration.
Where multiple perfected interests are registered in respect of particular property, the security interest with the highest priority will be that registered first in time, with the most recently registered interests being of the lowest priority.
Where an interest is ‘unperfected’, meaning it has not been registered or is not supported by a written security agreement, it will be rank behind a perfected interest. For example, a supplier who fails to register their security interest in unpaid goods arising under a retention of title clause in a supply agreement may find that, if the purchaser of the goods becomes insolvent, they are unable to enforce that clause to recover unpaid goods and that instead the goods are recoverable by a secured party with a registered security interest in them or the goods may ‘vest’ in the grantor (i.e., become its property, even if they were not paid for). This is an illustration of how traditional legal concepts of ‘ownership’ are subordinated under the PPSA regime.
If there are multiple unperfected interests, the highest-ranking interest among the unperfected interests will be the interest that ‘attached’ to the property first. ‘Attachment’ occurs when the grantor has a right to the relevant property (or the power to transfer its rights in the property to the secured party) and the secured party provides value for the security interest (for example, a loan) or the grantor undertakes another act by which the security interest arises.
It is important to note that although these priority rules apply in most circumstances, however, there are instances where the priority status of a security interest may be influenced by other factors.
Can a PPSR registration lapse?
Most registrations on the PPSR will only be valid a period of 7 years unless a shorter duration was specified on registration. It is critical to monitor registrations to ensure that they are valid and to undertake renewals within the timeframe where required to avoid losing your interest over the registered property.