The risks of getting it wrong
If you provide goods on credit, retention of title is not enough. To protect your business, you must:
- Ensure that your terms and conditions are up to date, and include the right to register a security interest; and
- Register your security interest on the PPSR; and
- Make sure that you register using the correct details and the correct property as security; and
- Register within the time limits, which vary depending on the nature of the security interest.
The Personal Property Securities Act (Cth) 2009 (PPSA) has been in place since 2012, but our Business Lawyers find a lot of businesses are not aware of how it works or underestimate the risks in not getting it right.
What are the risks?
No registration or incorrect registration has caused great concern in the business community. Even the US Chamber of Commerce has put in its two cents worth, sending a letter to Attorney General Senator George Brandis raising concerns that the Act is depriving American Companies of property leased to Australian Companies. Their concern was over four gas turbines worth over $50m where the leasing company had failed to register the property leased on the Personal Property Securities Register and stood to lose the $50m.
While the US Chamber of Commerce’s letter was directed at the PPSA’s effect on the hire industry, all businesses are at risk if they do not correctly protect their interests on the Personal Property Securities Register. Not only is registration essential, but the registration must also be correct. A failure to register properly means that a business is at risk of losing their priority to a later registration, as they may not have properly perfected their security.
Matters that seem straight forward such as the correct spelling of a customers name, registering over the incorrect ACN, failing to register promptly, or incorrectly describing the property secured by the registration, can all lead to the registration failing, and the business losing its property to a liquidator, or be in a dispute with a liquidator or administrator. This will be despite any retention of title provisions in your terms and conditions.
While these may seem like minor accidents, they are widespread. For example, we have seen a case where not one of the 62 registrations over a company were found to be correct, which means they all lost priority to a correct registration further down the list, namely the bank. We have seen multiple businesses lose goods worth in the millions to liquidators, because they have failed to properly register their interests.
What do you need to do?
To protect your business, you must ensure that your documentation, including any terms and conditions are up to date. You must also register your security interest on the Personal Property Securities Register, and make sure that any registration is completed correctly and within the time limits. Retention of title provisions on their own do not provide any protection should the customer go under.
If you have questions about the PPSR, your business documentation, or are concerned that your property is at risk, our Commercial Business and Property team can help. We talk you through the process and help you set up systems to register correctly.