Is that it? (Notice Filing System vs Transaction Filing System)

Once they get past the PPSR’s jargon of purchase money security interests, giving of notice identifiers, subordinated registrations etc, many of my trade credit clients have something of an ‘is that it?’ reaction. They’d been gearing themselves up to having to list part numbers and order references only to find that simply choosing the collateral class category of ‘Other Goods’ was pretty much all that was required. Understandably, there’s an element of anti-climax and concern that they should be doing more when it comes to describing the goods/collateral involved.

The answer to their concerns, to my way of thinking, rests very much in the nature of the register that the PPSR was set up to be. 

Prior to the PPSR, company security interests were registered on the ASIC Register of Company Charges.  The ASIC register acted as a Transaction filing system, whereby the document that acted as the security interest was filed in its entirety – a 30 to 40 page Registered Charge document signed by both parties being the most common.

Although the PPSR replaced ASIC’s register, the PPSR has been established as a Notice filing system whereby the secured party is merely required to announce that it has a security interest (or is likely to have a security interest).  The actual security interest – usually represented for trade credit suppliers by a Retention of Title clause in their terms and conditions – would need to be kept separately and brought out at any time evidence is required that the security interest asserted by the registration on the PPSR actually existed.

The registration on the PPSR, therefore, does not define the security interest or the collateral to which it applies, but instead merely needs to describe it in a manner that would provide an indication as to its nature for interested third parties.  Where the ASIC register stored 40 page documents, the PPSR stores the equivalent of an electronic post-it note.

Thus, when a supplier lodges a registration perfecting their Retention of Title security interest, they are putting others on notice that they have an interest, the precise details of which may be separately available from them in response to any third party enquiry – such as might be required from an insolvency practitioner should the customer fall over.

When a liquidator (or similar) is appointed to a company, they will conduct a search of the PPSR to see who is asserting they have a security interest.  They will then write to each of these asking for the evidence that such an interest exists and is consistent with the general description provided by their lodgement on the PPSR.  It is at this point that suppliers will need to detail the specific items of collateral to which their security interest applies and provide evidence of the relevant acceptance by the customer of their security rights.

Specific serial numbers are only required to be provided as part of a PPSR registration when that registration concerns motor vehicles, watercraft, aircraft and certain other weird and wonderful types of collateral such as Intellectual property patents and plant breeders’ rights.

Inserting serial numbers in Collateral description fields of ‘Other Goods’ registrations may be of some assistance to a liquidator in identifying specific stock – although promptly providing that information separately upon request would be just as helpful – but can create a rod for suppliers’ backs in as much as any typo or omission would render the effectiveness of that registration subject to challenge.  It would also take the supplier down the path of having to either lodge multiple registrations every time a fresh delivery was made or constantly amending existing registrations – an administrative burden I’m sure they could do without.

If a security interest is in the form of an accepted Retention of Title clause then an ‘Other Goods’ registration, describing the collateral as that supplied by the secured party and the interest as a Purchase Money Security Interest (PMSI) should be sufficient, if registered in a timely fashion, to secure a supplier’s rights to those goods until such time as they have been fully paid for and assure the supplier of a higher ranking interest over those goods than any other creditor in the event the customer falls insolvent.