Australia: Personal Property Securities Register – what, when and why?

This article provides a refresher on the key practical issues to consider when registering a security interest on the Personal Property Securities Register (PPSR).

What is the PPSR?

The PPSR is a single national register for the registration of security interests established under the Personal Property and Securities Act 2009 (Cth) (PPSA), which commenced on 30 January 2012. The PPSR replaced numerous national and state based security registers, including the company charges register previously administered by the Australian Securities and Investment Commission.

What can be registered?

The PPSR is for registration of 'security interests' taken over 'personal property', to assist with protecting the priority position of that security interest.

The most typical registration is for a security interest over collateral granted under a security agreement, generally to secure an obligation to repay a loan or credit made available by the secured party to the grantor.

Other common types of security interest that are registered on the PPSR include:

• the supply of goods on retention of title or conditional sale arrangements;
• the lease, hire or bailment of goods for a term of two years or more (see our article on PPS Leases here); and
• turnover trusts created under the terms of subordination arrangements.

Note that land and certain statutory rights and entitlements (such as, for example, mining rights) are expressly excluded from being 'personal property' under the PPSA, and as such security interests over those assets do not need to be registered on the PPSR (however may require registration elsewhere to protect their priority).

Why register?

Registration protects the secured party by notifying others of their security interest in collateral, and, absent any contractual priority agreements between secured parties, priority is generally determined by time of registration (save for the super priority offered by a validly created and registered purchase money security interest (PMSI)). As a relatively inexpensive and quick process, registrations are always recommended.

In the event that a security interest is not registered on the PPSR, a bona fide purchaser may be entitled to take the collateral free of the security interest. The security interest is also at risk in the event of the grantor's insolvency (see below under 'When do you need to register').

When do you need to register?

A secured party should generally seek to register its security interest as early as possible, as timing of registration can affect the priority of the security interest.

The PPSA permits registration even before the security interest is created, provided the secured party making the registration believes, on reasonable grounds, that it is or will become a secured party in relation to the collateral. Practically, where a security interest over collateral is granted under a security agreement, most secured parties will register on the PPSR immediately after the relevant agreement is signed.

A table setting out the general required timing with respect to registrations is below:

The timing for registrations in respect of collateral of a corporation is particularly important as, if the security interest is not so registered within the requisite timeframe, the security interest will 'vest' in the corporation if it becomes insolvent within six months following late registration, meaning that the secured party will lose its security interest in the collateral.

What should the registration be against?

In addition to timing requirements, the PPSA (and associated regulations) set out strict guidelines for the identifier of a grantor to be used in registrations.

Generally, the identifiers that must be used are:

• for a corporation, its ACN;
• for a trust, its ABN;
• for a partnership, its ABN; and
• for an individual, their full name (and date of birth is also required).

There are exceptions (and higher priority identifiers) in certain cases, particularly where an entity has an ARSN.

The required identifier is not restrictive, and a registration may be against multiple identifiers (i.e. a corporation's ACN, ABN and name), however at a minimum the registration should be made against the highest priority identifier. If this is not done, the registration may be defective (and so of no effect) - see our article here on such a defective registration costing millions of dollars.

A registration can be made by the secured party directly, or by a representative on their behalf. The registration process is simple and can be done quickly, and does not require a copy of any document to be uploaded to the PPSR.

The secured party must first create a secured party group number (SPG), which is a unique number used to identify the secured party on the PPSR. The SPG is linked to a contact email and mailing address so that the secured party can be contacted in respect of its registrations. Most banks and financial institutions have multiple SPGs, each relating to a particular division within the organisation.

Each registration can also be identified by a giving of notice identifier (GONI). The GONI is essentially the secured party's internal reference number for the registration, and whilst not compulsory, it is generally used to assist with managing the numerous registrations held by most institutional secured parties.

Other information required to register include the type, class and description of the secured collateral, whether the interest is a purchase money security interest (PMSI), serial numbers of the collateral (if applicable), and the details of the grantor/s (including ACN, ABN or date of birth if an individual). The rules regarding collateral classes selected and descriptions can be complex and specific advice should be obtained if there is doubt.

What registration duration to use?

There are broadly three duration categories for registrations:

• up to seven years;
• more than seven years but less than 25 years; and
• no stated end time (indefinite registration).

The duration of registration should match the maximum time frame that the security interest will be relied upon. Whilst it is common for most secured parties to default to the longest period available, being an indefinite registration, the cost of an indefinite registration is significantly greater than the other durations.

At the time of writing, the fee for a registration with no stated end time is $115 compared to $25 for a duration of up to 25 years. For a small number of registrations the cost may not be material, however, if there are numerous registrations required for a transaction, the aggregate cost may be substantial. Some secured parties have policies requiring only 25 year registrations unless exceptional circumstances exist, as practically, the vast majority of security interests would not subsist and be relied upon for a term greater than 25 years.

Conclusion

Registrations on the PPSR are relatively simple and generally inexpensive, and offer secured parties protection of their security interests against third party purchasers, competing secured parties and insolvency events. However, there are specific rules which must be complied with to ensure registrations are effective.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.