PPSR Statistics & the Rise of 'Other Goods'

The Australian Financial Security Authority (AFSA) – perhaps better known as the people that run the PPSR – released, earlier this month, PPSR related statistics for the July-September quarter.

I’ve included a link here.

As at the end of September, there had been a total of 19,265,693 registrations, of which marginally under half were still current.

The largest single collateral class overall was, unsurprisingly, Motor Vehicles, accounting for 49% of all current registrations (although if you take Consumer related transactions out of the picture this drops to 34%).

However, what caught my eye this time around was the extent to which Other Goods registrations have come to dominate over the last 5 years.

5 years ago, All Present & After-Acquired Property registrations (AllPAAPs) accounted for a little over 2 million registrations while Other Goods registrations made up less than a million (944k).

This shouldn’t be too much of a surprise; AllPAAPs are primarily the preserve of banks and financiers who would have been all over the PPSR upon its introduction, ensuring their security interests were properly protected from the outset.  Other Goods registrations, on the other hand, are very much the tool of the trade credit supplier with Retention of Title rights and, as we know, this disparate group is not always the most organised or receptive when it comes to ‘Government Red Tape’.

However, things have changed considerably over the last 5 years with AllPAAP registrations remaining pretty static (even declining slightly) and Other Goods registrations steaming ahead as trade credit suppliers get the message that PPSR registration represents one bit of Red Tape they need to adopt if they are to protect their rights over their unpaid goods and give themselves a better chance of fending off liquidators’ preference claim clawbacks.

With over 2.6 million current registrations, Other Goods now represents the largest collateral class for non-consumer registrations.

There is every indication that this trend will continue as trade credit suppliers come to terms with the fact that the PPSR isn’t going anywhere and failing to embrace it will only contribute to them suffering larger losses than they need to.

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.

PPSR Registration Stats

Yesterday (20/10/14), AFSA released its quarterly statistics for the PPSR.

After the 'excitement' of the first quarter figures (which captured the race to register before the 2 year Transitional period expired), this quarter, and the previous quarter, show little of interest by way of registrations; although, it is slightly interesting to note the continued growth in searches of the Register.

Total number of registrations reached 8,305,528 by 30th September and the collateral classes covered show a clear domination by registrations of interests over Motor Vehicles:

Agriculture	66,818
Aircraft	12,639
All present and after acquired property	1,774,352
All present and after acquired property, except	220,432
Financial property	29,199
Intangible property	85,319
Motor vehicle	4,239,378
Other goods	1,834,231
Watercraft	43,160