REGISTERING PERSONAL PROPERTY SECURITY INTERESTS
If you sell personal property (such as goods or equipment or livestock or vehicles etc) on account OR if you lease or hire out personal property to third parties (hereafter referred to as "your customer"), then you need to be aware of the Personal Property Security Act ("the PPS Act").
The PPS Act enables you to record your ownership and other rights in goods or equipment or other personal property that your customer has not yet paid for. This type of security interest can be registered even if the anticipated account payment period is quite short.
The PPS Act also permits you to record your ownership of goods, equipment, livestock (including racehorses) or other personal property that has been leased to your customer, if the lease is a long term lease.
From 1 October 2015, the PPS Act deems leases to be on a long term basis if:-
- The lease has no defined term or is for an indefinite period; or
- The lease is for a motor vehicle, boat or aircraft (or equipment with a serial number) and is for a term of 12 months or more (including options) (this was previously only 90 days); or
- Where the lease itself does not contain provision for a long term, if you consent to your customer keeping the goods or equipment for more than one year.
If you register your interest within the relevant time frames AND if your customer goes into liquidation, then you can protect your assets from being sold by your customer's liquidator.
However if you fail to register your interest by the relevant deadline AND if your customer enters into liquidation, then their liquidator is entitled to sell your goods and equipment, without needing your consent and you will merely be an unsecured creditor among many seeking their money back.
There are different deadlines to register your ownership interest depending on the type of transaction that has taken place. These deadlines are as follows:-
SECURITY INTERESTS WHERE PERSONAL PROPERTY IS SOLD ON ACCOUNT OR BY WAY OF VENDOR FINANCE -
|Type of Goods||Deadline for PPS Registration|
|Where your goods are part of your customer's inventory:||
The PPS security interest must be registered by you before your customer obtains possession of the goods from you.
Where your goods are not inventory:
The PPS security interest must be registered by you within 15 business days of your customer obtaining possession of the collateral.
If you do not register a PPS interest within the relevant timeframes, then the PPS interest may still be validly created as a general security interest (ie an interest which effectively puts other parties on notice of your interest in the goods, eg this may be useful if your customer sells his or her business), however it will not benefit from thesuper-priority over liquidators.
In addition where your security interest relates to a company, the Corporations Act also provides for a 20 business day registration time limit for general security interests, if you wish to minimise the risk of your property being sold as part of your customer's liquidation.
Given the competing time limits, we recommend that, if in doubt, you register a PPS registration as early as possible in any transaction where a PPS interest may arise.