Franchisors need to be proactive to take steps to protect their interests under the Personal Property Securities Act (PPSA).

Where a franchise business is involved in the activities set out below

  • provides goods on credit to a franchisee;
  • leases goods to a franchisee;
  • wishes to sell a franchise business to a franchisee on a deferred payment basis and protect its interest in capital equipment provided to the franchisee; or
  • acquires goods from suppliers on a credit, lease or similar basis;

then the franchisor needs to consider the following:

  • how to ensure that your interest in goods that you provide on a credit or lease basis is enforceable;
  • reviewing your security documentation and terms of trade to ensure that they will continue to be enforceable after the PPSA commences; and
  • the implications of your security interests being made public on the new public electronic register.

If a franchisor provides goods to a franchisee on credit or lease basis but does not register its security interest in the goods there may consequences to the franchisor, namely

  • if the franchisee's financier does register its security interest in the franchisee's assets, then if the franchisee defaults, the financier's security interest will take priority over the interest of the franchisor;
  • if the franchisee becomes insolvent or enters into administration, title to assets leased by the franchisor to the franchisee will transfer to the franchisee; and
  • if the franchisee were to deal with the leased assets or assets provided on credit, in certain circumstances the third party transferee of the assets may take them free of the franchisor's interest in the asset.

To avoid such adverse consequences, the franchisor should register its security interest.


Franchisor leases plant and equipment to a franchisee but does not register its security interest in its plant and equipment. The franchisee's bank registers a general security interest over the assets of the franchisee. The franchisee becomes insolvent.

Can the franchisor repossess the plant and equipment? No. The franchisor must claim amounts owed to it. The franchisor's claim ranks alongside other unsecured creditors.

Can the bank take possession of the plant and equipment? Yes. It is not relevant that the franchisor had legal title to the plant and equipment. This will be the case even if:

  • the bank registered its security interest after the franchisor's own (unregistered) security interest was created; or
  • the franchisor had an attached but unperfected security interest (since a perfected security interests outranks an unperfected security interest).

Similar principles apply where a franchisor sells a franchise business to a franchisee and the franchisee is only required to pay the purchase price by instalments.

The franchisor will need to consider registering a security interest over the capital equipment and assets of a business in order to ensure that if the franchisee defaults in its payment obligations (or becomes insolvent or enters into administration), the franchisor will prevail over the franchisee's bank or its liquidator or administrator. While the usual commercial considerations will apply, the arrangements will need to comply with the PPSA.

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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.