The Personal Property Securities Act (PPSA) has been in force since 30 January 2012 however there are still organisations that sell goods on credit or supply goods under lease arrangements that either haven't heard of the PPSA, or have heard of it but think that it doesn't apply to them.
When such views are coupled with a degree of disenchantment arising from push-back by administrators and liquidators where PPS registrations are either inaccurate, unsupported by a security agreement or out of time, I sense a growing view amongst some organisations that the value in embracing the registration process is questionable.
My view is that whilst registering on the Personal Property Securities Register (PPSR) won't always guarantee recovery of goods unpaid for or the proceeds of sale, a failure to register where the goods in question are personal property (as defined in the PPSA) is fatal to any such recovery.
Set out below are some of the issues referred to above. Hopefully, if business advisers are aware of these eight issues they can ensure that their clients have a clear understanding of the requirements for an effective PPS registration and the benefits from having such a registration.
Purchase Money Security Interest
- A Purchase Money Security Interest (PMSI) is a type of security interest. It's commonly described as offering 'super priority' to the secured party over the collateral or goods that have been supplied on credit and not paid for, under a PPS lease, under finance or under a commercial consignment.
- To register a PMSI that will be enforceable (and that will take priority over prior registered general security interests in favour of banks and other financiers), you need to do the following:
- Check box the PMSI selection during the online registration process
- Correctly select whether the goods being supplied are inventory (being supplied to a customer for on-supply or using up in a manufacturing process) or non inventory items (for the end use of the customer).
- The importance of complying with item 2(b) arises out of the PPSA requirements for registrations claiming a PMSI to be made within certain time frames as follows:
- Registrations in relation to inventory must be made before the supply of the relevant goods
- Registrations in relation to non inventory items must be made within 15 business days of the supply of those goods.
- For any PPSA registration to be enforceable (whether as a PMSI or otherwise), section 588FL of the Corporations Act must also be complied with where the grantor is a corporation. This section provides, in essence, that where your customer has an administrator or liquidator appointed within six months of the date of your registration, then unless your registration was made less than 20 business days after the date on which the security interest was created, it will be void against the administrator or liquidator.
The Security Agreement
- A security interest is created when the supplier and customer agree on the contractual terms governing supply – generally when the customer lodges an application for credit in which it acknowledges receipt and acceptance of the supplier's terms and conditions of trade. Care must be taken therefore to ensure that:
- The terms of trade contain provisions (such as a retention of title clause) that give rise to a security interest
- The terms of trade have been accepted in writing or by conduct by the customer
- A registration of that security interest has been made on the PPS Register within 20 business days.
- The definition of 'personal property' in the PPSA excludes 'fixtures to the land'. The 2013 Cancer Care case highlighted the difference between the meaning of a fixture under general law and the meaning under the PPSA. What was critical in that case was the intention of the parties and the granting of a security interest in the linear accelerators that were supplied, by implication, confirmed that the parties acknowledged that those goods were removable (in the event of non payment).
- Recently, the NSW Supreme Court considered the question of what constitutes a 'fixture' in the matter of Forge Group Power Pty Limited (in Liquidation) v General Electric International Inc - in this case, the goods were mobile gas turbines supplied to Forge before it went into voluntary administration. Having not registered an interest in these goods on the PPS Register, General Electric asserted that the goods weren't personal property (being fixtures) and therefore fell outside the regime of the PPSA. The court held that the turbines were sold as 'mobile' turbines, for use in a temporary power station site under an agreement that required their return at the end of the rental term. The court further held that their removal wouldn't damage the land and that the removal cost was modest in comparison to the cost of the turbines. The goods were held not to be fixtures.
- Whether to register on the PPSR or not in relation to goods that might be considered fixtures is a question that requires a close analysis of the nature of the goods, their intended use, and the intention of the parties if the goods weren't paid for. This is particularly an issue where suppliers are supplying pumps, piping, air conditioning units and the like for incorporation into a building or factory. Where it is clear that the goods are fixtures then consideration should be given to taking a mortgage over the real property or some other asset of the customer to which the goods will be affixed.
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.