What is the PPSR and how can small business use it ?

Registration of security interest on the PPSR is vital for secured parties to enforce their rights. Small-business owners can register their personal investment in the company as a secured loan on the PPSR. This will allow them greater control and options in the face of financial distress and insolvency so that they can survive and thrive again.

1. What is the PPSR?

The Personal Property Securities Register (PPSR) is the official government register for security interests over personal property, which came into existence in 2012. The PPSR consolidated a large number of separate registers that previously existed. The purpose of the PPSR is to let the world know that a party has a security interest over the personal assets of a company.

2. What is a security interest?

A “security interest” is any interest in personal property which secures a payment or performance of an obligation. A security interest includes the following agreements:

· a fixed or floating charge;

· a mortgage over assets;

· a hire-purchase agreement;

· a pledge;

· a consignment;

· a lease;

· an assignment; and

· a transfer of title.

Security interests exist to ensure that a party who gives credit to another is protected if the credit can’t be repaid. That obligation may be the repayment of a loan to the bank, or it could be the supply of goods on account. In this blog, we will focus on the situation where an owner loans money to the company.

3. What is personal property?

Personal property is any kind of property, either hard assets or soft assets, including all forms of intellectual property. Examples of personal property includes:

· goods;

· vehicles;

· licences to operate a business;

· shares; and

· intellectual property.

It is important to note that personal property does not include land, buildings or fixtures attached to land and can’t be registered in the PPSR. Security can be taken over this asset class as well; but, it must be by way of a real property mortgage.

4. Enforcement of security interests

A security interest can only be enforced against the assets of company if that interest is registered correctly on the PPSR within the time permitted. Assets that have a validly registered security interest are known as “collateral”.

Collateral is personal property over which security interest is “attached”. Attachment occurs when an agreement is reached between the parties that collateral will be put up as security for the repayment of credit.

A security interest is enforceable against a third party in respect of particular collateral, only if the security interest is attached to the collateral, and either the secured party possesses the collateral, the secured party has perfected the security interest by taking control of the collateral or the collateral is covered by a security agreement.

A security interest is perfected, in the case of a loan from the owner to the company, if the security interest is attached to the collateral, the security interest is enforceable against a third party and is registered on the PPSR. Perfection may occur in other ways for other types of security agreements.

It is important to note that the PPSR is only a notification system. While it is vital to allow enforcement, the underlying agreement must also be effective and enforceable as an agreement. Registration on the PPSR will not fix any problems in the underlying agreement.

5. Does a security interest have to be registered?

There is no requirement for a security interest to be registered on the PPSR. However, there are a couple of things to note:

· where there are two or more security interests in the same personal property, a registered security interest in collateral has priority over an unregistered security interest in the same collateral.

· if the company goes into external administration and the security is not registered in accordance with the Act, the security interest is said to “vest” in the company and essentially is no longer able to be enforced. The secured party essentially loses their security.

6. When must a security interest be registered on the PPSR?

In order for the registration on PPSR to be valid and enforceable, the security must be registered on the later of the following times:

· within 20 business days of the security interest being created;

· within 6 months of the company going into external administration; or

· as otherwise ordered by the Court.

If the security interest is not registered on the PPSR within 20 days of creation, it would be However, such an application to the Court could cost at least $15,000. On that basis, it is important that the security interest is registered as soon as possible.

7. Small business owners using the PPSR for protection

The law allows a business owner to enter into a secured loan with the company. That means an owner can protect the investment they make in the company as a secured loan.

Holders of security over the assets of the company have priority over other creditors when it comes to being paid their debt from the proceeds of the sale of the assets if the company goes into liquidation. It also means they are in a better position to use the insolvency regime to restructure the company. Please use this link to read more about the benefits to an owner of protecting their investment as a secured loan.

The crucial element to being able to enforce the security is that it is registered on the PPSR. It is not enough to simply record the investment as a loan in the accounts, nor is it enough to sign loan and security documents. The interest created by the agreement must be registered on the PPSR.

Small businesses that for example supply goods on credit, or carry out work on equipment should also learn about how to protect themselves against non payment. However, whilst the same broad principles essentially apply that is not the focus of this article.

It is incredibly important that any secured loan is set up properly with enforceable documentation and that the security interest created is registered on the PPSR as soon as possible. Small business owners should seek advice about this or go to www.krodok.com.au to get more information.