If you own or finance equipment and on-hire it you could be at risk of losing that equipment if you haven’t registered your commercial arrangement on the Personal Properties Securities Register (PPSR),
A lot of people haven’t heard about the PPSR, or the Personal Properties Securities Act 2009 (PPS) itself (the name is confusing as it also applies to businesses and their assets), and the consequences of that ignorance could be dire.
What is the PPS?
The PPS is a Commonwealth Act which commenced on January 30, 2012 and introduced a national regime which replaced many existing schemes (including over 195 Acts and Regulations and 70 registers) which dealt with the registration of security interests over property in Australia. You may have been familiar with some state registers that were replaced — such as the Register of Encumbered Vehicles (REV) and the Victorian Securities Register, where financial interests over registered vehicles were held.
What is the PPSR?
The PPSR is the register where details of security interests in property can be registered and searched. It is administered by the Australian Financial Security Authority (AFSA), which says ‘personal property’ includes goods as well as intangible property and, in the case of business, may include inventory, shares, and plant and machinery.
Example of how you can lose your asset
The PPS goes one step further than previous legislation in that if you hire your asset to a third party on a handshake (or formal arrangement) and you are not correctly registered on the PPSR, if a receiver/liquidator is appointed to the third party they can take possession of the asset, sell it and keep the proceeds. You think I am kidding, right?
A recent court case last month proves the above, as reported by Andrew McLellan of EDX Australia, a specialist in the area of PPS. The case is Spiers Earthworks Pty Ltd – WA Supreme Court judgment, April 16, 2014.
“The receiver obtained a court order not only confirming that he was entitled to retain and sell the assets in his possession, but that Spiers Earthworks had to return all the assets that they had repossessed prior to the receiver being appointed,” he reported.
“Collecting your assets prior to the appointment of a receiver will not save you. Only correct PPSR registration can achieve this.
“The agreement commenced in 2010. The company that hired the assets had receivers appointed over it on July 24, 2013. Spiers Earthworks did not bother registering on the PPSR. Considerable legal fees were then spent by Spiers justifying why it didn’t need to register.
“Spiers explored two new defences to justify why it did not need to register. The first defence was that the receiver would be acquiring the assets for nil value, which was not on just terms. It also explored the defence of how the PPSR interacts with state laws. Both defences were knocked back by the judge. In simple terms, there is no sensible alternative to correct registration on the PPSR.
“Spiers is just one more example where the owner of valuable hire equipment has lost assets to an insolvency practitioner. The lesson to be learnt is that you need to register and you need to register correctly. Seeking expert PPSR advice to get the registration performed correctly will be far cheaper than paying solicitors to argue a potentially losing case with an insolvency practitioner.
“In Spiers’ case, they now have to pay both their legal fees and the legal fees of the receiver. In addition, they have lost assets with a value of more than $1,400,000. This is in contrast to correctly registering for $16 on the PPSR.”
So what can you do to protect assets?
- Understand the PPS and ensure your interest is correctly registered on the PPSR.
- Seek advice from your accountant or legal adviser
- Use a company such as EDX Australia www.edxppsr.com.au
The website www.ppsr.gov.auprovides additional information about the PPSR.
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