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Wednesday, 17 October 2012

Reading a PPSR Registration


The manner in which the PPSR has been designed does not require suppliers to provide any description of the collateral representing their security interest beyond identifying the Collateral Class (eg, 'Other Goods').  

There is an opportunity for registrants to provide a description of their goods but this is not a mandatory field and, as with most Government forms, if you are given an opportunity not to have to enter something then it is not unnatural to give a quick murmured thanks to your deity of choice and move on, leaving the optional field pristine and untouched.

However, there are clearly a large number of organisations out there (most of which should definitely know better) who seem to view the absence of a collateral description as some sort of indication that the registration could therefore apply to anything.  As a result we have clients who supply paper products, for example, being asked to sign Deeds of Release or amend their registrations for anything from cars and trucks to hose-pipes and buildings.

The big problem, however, is not that the supplier has failed to enter a collateral description but that the third party (usually a bank or financier) has failed to understand the information that is contained in the basis registration.


At the moment one of our client's ‘typical’ registrations without a collateral description tells the following story (I'll simply refer to our client as ABC):

Commercial Property
ABC have a security interest over certain property owned by the Grantor.  This does not include any interest over property owned by the Grantor in any capacity they may hold as a private consumer.

Other Goods
That security interest is not over land, buildings or serial numbered collateral such as motor vehicles, watercraft, aircraft etc.
ABC's security interest is over tangible goods and is not a general security interest over all the Grantor’s property.

PMSI
The security interest only applies in relation to goods that ABC have supplied to the Grantor.

Inventory
The security interest applies to goods ABC have supplied that form part of the inventory of the Grantor and therefore does not apply to any of their other assets and equipment.

Proceeds
ABC's security interest extends to any return the Grantor may have received from on-selling or otherwise disposing of the goods ABC supplied.
ABC's security interests only apply while there is an outstanding account between the Grantor and ABC.

The above is all evident from a quick glance at one of ABC's Verification Statements or from the results of a search that any third party might conduct on the PPSR.

While adding a collateral description of, say, “Materials and raw materials” will certainly do no harm, I am sure you will agree that it adds little if anything to the basic story being told by ABC's registration without that description.

I appreciate that it must be getting more than a little frustrating to be pestered by third parties who, for whatever reason, have failed to take the trouble to understand a supplier's registrations to that end the following ‘standard’ response we drafted recently for another of our clients in a similar predicament may be of interest:


Our registration relates to a security interest held, by virtue of a Retention of Title clause, over goods supplied by us as well as over the proceeds of any sale of those goods. 

Reference in our registration to “All present and after acquired property” relates solely to any proceeds that might arise from the use, disposal or sale of collateral supplied by us and does not represent a security interest over any other assets of the Grantor. 

In light of this it would appear neither necessary nor appropriate for us to complete the Deed of Release you have provided.



Registering Transitional Security Interests


The introduction of the PPSR required that personal property security interests be ‘perfected’ in order to achieve full effectiveness under the PPSA.  

While this perfection is commonly interpreted to mean registration on the PPSR, the Government has made it clear that security interests arising from security terms in credit agreements already in place at the time of the introduction of the PPSR are deemed to have achieved that perfection via legislation. It is this provision that is referred to as the PPSR’s Transitional arrangements.

In the PPSR’s Fact Sheet on Retention of Title interests the Registrar describes the effect of the Transitional arrangements as follows:

In order to give businesses an opportunity to adjust to PPS reform and the need for registration on the PPS Register in particular, a 24 month transitional period exists from registration commencement time (RCT).

The effect of this transitional period is that ROT suppliers or lessors who have entered into agreements that create security interests in the property supplied or leased before RCT will have two years to register those interests.

It is important to note that it is the agreements that must pre-date RCT, the security interests (for example, by way of supply the goods) may arise after this time. Agreements entered into after RCT are not subject to the transitional arrangements.

It is important to note that the PPS Act does not require a registration to be made in respect of all supplies or leases to the same buyer or lessee. A single registration may cover subsequent security interests in property that is supplied under later agreements


In effect, registration on the PPSR is not necessary for perfection of the security interests held over a supplier's pre-PPSR client base until 29th January 2014.

Where Transitional security interests are registered on the PPSR the specific date of that registration is held to be irrelevant in determining any matters of priority.  

When any issues of competing security interests arise in respect of Transitional security interests the relevant date is taken to be the date of the agreement which contained the terms that gave rise to the security interest in question – eg, the date of the signed credit agreement with between supplier and customer.

Where credit agreements are signed after the commencement of the PPSR; however, the situation is completely different.  

When a supplier needs to assert their security interest in respect of a new account (established post-PPSR commencement) their priority against competing security interests will be determined by reference to the date of their registration and the date the credit agreement was formed will be held to be irrelevant.

The PPSR does not charge for registering Transitional security interests and while there is no specific hurry to do so it would be unwise to leave it to the last minute rush as the two year grace period draws to a close.

There have been a few challenges to the interpretation of the PPSA's Transitional rules which I have discussed here but nothing conclusive has been determined as yet.

P

Monday, 8 October 2012

PPSA Pitfalls

I've been asked to compile some speaking notes for a colleague who wants to talk about some of the PPSA pitfalls we have become aware of since the PPSR opened for business at the end of January this year.  

While this is far from an exhaustive list (this is for a speaking engagement after all and it doesn't take long for eyes to glaze over once the subject of PPSR is raised) I nevertheless thought it might be helpful to reproduce it here.

  • Don’t rely on an independent body such as a judge, court or the PPSR itself to determine the validity of your security interest under the PPSA – more often than not such issues will be decided by a receiver acting on behalf of a bank who will have a vested interest in defeating any competing rights you hold.
  • Where the PPSA requires goods to be registered by serial number you must not make any mistakes in recording that serial number on the PPSR as any error is likely to invalidate the registration without it having to be demonstrated that anyone was misled by that error.
  • Banks are frequently (wilfully?) misunderstanding PPSR registrations and asking suppliers to discharge registrations to enable the bank to put their own registration in place – they are then ‘generously allowing’ the supplier to re-register their own interest!  Do not fall for this!
  • If your debtor/grantor is a company with an ACN and you do not specifically register against that ACN then your registration will almost certainly be deemed to be invalid.
  • Timeliness is very important. Do not allow your new credit agreements to pile up with the intention of registering  them all at the end of the month.
    • Where your goods are destined to form part of your buyer’s inventory (WIP, end product etc.) you need to register before you make delivery.
    • Where you are selling equipment that will not be on-sold you need to register not later than 15 days from delivery.
  • Do not confuse ARBNs with ABNs – an ARBN (Australian Registered Body Number) is a 9 digit number issued by ASIC, most commonly to overseas companies whereas an ABN is an 11 digit number issued by the Australian Business Register.  We have seen a lot of invalid registrations arise from this confusion.
  • While the PPSA does not require you to obtain prior permission from your buyer to register your security interest against them it does require you to notify them once you have lodged your registration. (With the right wording in your agreed Terms & Conditions, however, you can have your buyers waive their rights to receive such notification).
  • PPSR registration is not enough to justify your claim against an administrator; you will still need to be able to provide the documents that demonstrate you have the valid security interest you are claiming with your registration.
  • Most know that Retention of Title clauses justify PPSR registration but don’t overlook the need to also register consignment stock and long-term leasing arrangements.
  • Make sure that your staff who are actually lodging your registrations understand what they are doing – we see many instances where they seem confused by terms such as ‘inventory’ and ‘Retention of Title’ let alone ‘Purchase Money Security Interest’.
  • It is better to have a PPSR registration you don’t need than to need a registration you don’t have.
  • Do I need to register all my security interests – No, only the ones you want to be effective.