Notifying the Grantor – what are your obligations?

Every time you lodge a registration on the PPSR you will be provided with a Verification Statement confirming the details of your registration.  Every Verification Statement issued by the PPSR contains the following paragraph:

Section 157 of the Act advises that the Secured Party, upon receiving their Verification Statement:

must ensure that a notice of the statement, in the approved form, is given to the following persons as soon as reasonably practicable after the time of the registration event:

(a)          a person registered as a grantor in the registration immediately before the time of the registration event;

(b)          a person registered as a grantor in the registration immediately after the time of the registration event.

Essentially, 157 requires that notification is provided to the Grantor.  The rather convoluted wording at (a) and (b) is to allow for circumstances where a Verification Statement has been issued to recognise an amendment to an existing registration in which a Grantor has been removed from a registration.  In such an instance 157 is advising that the notification must be sent to the Grantor that has been removed from the registration as well as to the Grantor added to or remaining on the registration.

[Remember:  Verification Statements are not only issued when an initial registration is lodged, they are also issued when any amendments are made to that registration – every Verification Statement you receive brings with it an obligation to notify the Grantor.]

Section 157 goes on to allow for the Grantor to waive their rights to receive notification of a Verification Statement where the security interest arises from a commercial rather than consumer transaction.

The sort of waiver that a Grantor may sign will usually appear as a clause in a set of Terms & Conditions that are accepted when entering into a credit agreement.  The following are some examples of 157 waivers I've seen cropping up in such Terms:

The Purchaser acknowledges and agrees that the Supplier may apply to register a security interest in the Goods at any time before or after delivery of the Goods. The Purchaser waives its right under s 157 of the PPSA to receive notice of any verification of the registration.

Or

Pursuant to section 157 of the PPSA, unless otherwise agreed in writing by Us, You agree to waive the right to receive the Verification Statement in respect of any Financing Statement or Financing interest statement relating to the Security Interest.

So, now we have a clearer idea as to what the Act actually states, let’s look a bit more closely at how we provide our notification, what form should it take and what information should be included; when we need to provide notification; and what happens if we let things slip and don’t actually get around to notifying the Grantor.

How should we provide our notification?

While the PPSR talks about giving “a notice of” the Verification Statement in “the approved form”, they basically mean that you should send a copy of the Verification Statement itself.  Which, means forwarding a copy of the statement the PPSR email to you onto your Grantor.  So that this doesn’t hit your Grantor unaware, it would be helpful if you were to accompany the Verification Statement with a helpful explanation as to what this is all about.

I’d suggest something along the following lines:

Dear Valued Customer

PPSR: NOTICE OF VERIFICATION STATEMENT
Provided pursuant to section 157 of the Personal Property Securities Act 2009

This letter is to inform you of a registration we have lodged on the Personal Property Securities Register (PPSR) a copy of which accompanies this letter.

Our registration is strictly in relation to a security interest we maintain over the goods we supply in the form of a Retention of Title clause enshrined in our standard Terms & Conditions of Sale.

Our registration on the PPSR is purely a means to safeguard our position against any competing claims from other creditors and should not, as a matter of practicality, change our normal trading relationship with you nor indicate any concerns regarding your value to us as a trading partner.

Should you believe that our registration is not valid please contact the undersigned as soon as possible and we will be happy to work with you to resolve any misunderstanding.

We encourage you to visit the Government website, www.ppsr.gov.au, if you require further information on the PPSA.

Thank you for your ongoing support.

Yours faithfully

The PPSR did toy with the idea of providing a template for the formal notification rather than requiring a copy of the Verification Statement itself be issued and even went so far as to refer to this as an option in their earlier Verification Statements:

However, when I challenged them on this they admitted they didn’t, in fact, have any such template and quietly removed any reference to it.

Important:  If any individual’s date of birth is visible on your Verification Statement then that date of birth should be masked/hidden/obscured/redacted or otherwise rendered unreadable before it is forwarded to anyone other than the specific individual in question.  Failure to do this may cause you to fall foul of the Privacy Act 1988.

When should we provide notification?

Well, the Act is relatively vague on the matter and states that the notification must be given to the Grantor “as soon as reasonably practicable after the time of the registration event”.

[Remember:  The registration event can mean the initial registration itself, an amendment to an existing registration or a discharge of a registration].

So, how should we interpret “as soon as reasonably practicable”?

Perhaps, more pertinently, how would the Australian courts interpret the term?

In 2001 the Australian High Court observed that the words ‘reasonably practicable’:

are ordinary words bearing their ordinary meaning. And the question whether a measure is or is not reasonably practicable is one which requires no more than the making of a value judgment in the light of all the facts. (Slivak v Lurgi (Australia) Pty Ltd 2001)

This is probably good news for those suspecting some legal trickery but less helpful to those of us looking for a little more certainty.  In a nutshell, we don’t know whether something was done as soon as was reasonably practicable without first examining all the relevant circumstances.

If you have just lodged a registration before shutting up shop for the evening then I daresay it would be reasonable to expect the notification to be sent to the Grantor the following morning.  If the following morning happens to be a non-working day (a weekend or public holiday) then it would probably still be reasonable if the notification was sent on the next working day. 

Would it be reasonable to delay sending the notification for up to a week or so?  I’d suggest that the onus would then be on the secured party to demonstrate that it was not practicable to send the notification any earlier.

But, before we get too wrapped up in this, let’s consider the implications should we fail to send our section 157 stipulated notification.

What if we don’t send a notification?

While the PPSA allows for fines to be levied for a number of breaches of the Act, failure to fulfil section 157 obligations is not one of those breaches.

However, the PPSA does warn that the Grantor may have available to them an action for damages against the Secured Party under section 271 of the Act.

Section 271, basically, states that, if the Secured Party has failed to perform a stipulated obligation towards the Grantor, they (the Grantor) “have a right to recover damages for any loss or damage that was reasonably foreseeable as likely to result from the failure”.

So the Grantor would have to demonstrate to a court’s satisfaction that, as a direct result of not being made aware of the existence of a PPSA registration lodged against them, they suffered a financial loss that should have been reasonably foreseeable by the secured party.

Now, while it may not be impossible to imagine a scenario whereby such a loss could have arisen it certainly does test what might be considered ‘reasonably foreseeable’.

If we add to this, a situation where the Secured Party merely advised the Grantor of the existence of their registration without sending them a copy of the Verification Statement, then it becomes even less likely that the Grantor would be able to demonstrate a financial loss arising from not knowing the precise details of a registration, the existence of which they were aware.

I don’t want to give any encouragement to those looking for an excuse to ignore their notification obligations but I won’t be disappointed if I am able to provide some small comfort to some poor beleaguered credit manager who wakes up in the middle of the night in a cold sweat having just realised that they’d failed to forward a copy of a verification statement.

Important: Where the Grantor is an individual, the PPSA has warned that failure to provide the required section 157 notice may constitute “an act or practice involving interference with the privacy of the individual for the purposes of section 13 of the Privacy Act 1988”.

The Privacy Act provides for a civil penalty of 2000 units for a serious and/or repeated or widespread breach of section 13.  A penalty unit is, at time of writing, equivalent to $170.00.

Links to help identify Legal Entities

Following on from my piece regarding the importance of correctly identifying your Grantor on the PPSR - see here - I undertook to post some links and hints to make this task a little easier.

ASIC should probably be your first port of call.

https://connectonline.asic.gov.au/RegistrySearch/faces/landing/SearchRegisters.jspx?_adf.ctrl-state=b808lr8ev_19

This link helps identify whether organisations have ACNs. 

Choose “Organisation & Business Names” from the drop down box and enter the name of the business you are looking for.  You’ll probably get a list of matches from which you can choose the one that matches your customer precisely.

Any Australian businesses with PTY or PTY LTD at the end of their name must be registered here.

Most businesses with LTD at the end of their name are likely to be here although some state registered businesses may not be.

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https://connectonline.asic.gov.au/RegistrySearch/faces/landing/bn/SearchBnRegisters.jspx?_adf.ctrl-state=b808lr8ev_28

Where all you have is a trading name, this link is useful for identifying who owns that trading name.

Choose “Business names index” from the drop down box and enter the trading name for the business you are looking for.  If we enter “Haymans” for example, we will find on the second page of search results the following match:

Clicking on that entry will give you the following:

Showing that, in this example, the legal entity behind the trading name is Metal Manufactures Limited.  

Unfortunately, business names are registered against ABNs and do not show ACNs but, in this instance, clicking on the ‘Metal Manufactures Limited’ name will take you to a screen identifying the organisation’s ACN (as well as other trading names registered to them):

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http://abr.business.gov.au/Index.aspx

This link will take you to the Government’s ABN Lookup service. 

While it will certainly confirm to whom an ABN is registered it won’t identify who is acting as the legal entity should the ABN belong to a Trust. It will often show trading names used by the ABN holder (not always reliably however) which can then be used to perform a separate look-up as per the previous link provided above.

Identifying Your Grantor for the PPSR

You may have an ACN, ARSN, ARBN, ABN, RBN or even a Name which means you will almost certainly have a choice as to how you identify your business.  

While we often see choice as a good thing, this will not necessarily be the case when every option means an additional fee-incurring search you might need to undertake on a national register.

The Personal Property Securities Register (PPSR) has been designed as a national, publicly accessible, database where anybody, for the price of a cup of coffee, can run a search to see what security interests are held against a particular business or individual.

Because of that design, if a person conducting a search, in accordance with the PPSR’s guidelines, against a particular business is unable to see a security interest you lodged against that business then your registration will, in all likelihood, be deemed invalid and your security interest will be rendered ineffective.

Therefore, it is of the utmost importance that, when registering your security interest on the PPSR, you don’t just correctly identify the business against which you are taking your security but you identify that business in strict accordance with the PPSA’s rules.

Thus, while you might accurately transpose ABC Pty Ltd’s ABN onto the register by way of identifying your ‘Grantor’, the PPSA’s rule for identifying Pty Ltd companies is to use that company’s 9 digit ACN – this isn’t just a preference or a helpful guideline, but a fixed, unwavering insistence.  Your use of the company’s ABN isn’t just going to be the cause of a minor hiccup, swiftly cleared up by a quick phone call to the liquidator, it will, almost certainly, mean the complete and total loss of your security interest.

So what are the PPSA’s rules?

Firstly, the issue is whether your Grantor is an individual or an organisation.

If your Grantor is an individual, then, regardless as to whether they have an ABN or trading name, they need to be identified on the PPSR by the individual’s full name and date of birth.

If the Grantor is not an individual then they will be deemed an organisation.  It doesn’t matter that they are a husband & wife partnership, a local football club or Woolworths, they are all organisations.

The rules for organisations

The first question the PPSR will ask is “Does the organisation have an ARSN?”

This is equivalent to being asked, as a first question, upon registering with a new doctor, whether you have a third nipple!

An ARSN is an Australian Registered Scheme Number.  It is a 9 digit number issued to Australian managed investment schemes by ASIC.  It is a unique identifier and no two schemes can have the same number.

Next up, you are asked if the organisation has an ACN.  

An ACN is an Australian Company Number, it comprises 9 digits and is issued by ASIC to all companies incorporated under the provisions of the Corporations Act.  All your Pty Ltd customers will have an ACN and, even though they may not put it front and centre on their letterhead or will prefer to use their ABN when completing credit applications, this is the number you must use to identify such businesses. 

The only exception to this might be where the Pty Ltd company is specifically acting as trustee for a trust and using the ABN of that trust.

If your customer does not have an ACN you’ll be asked whether they have an ARBN.  

This is a little more common that an ARSN and stands for an Australian Registered Body Number, also comprising 9 digits and also administered by ASIC.  ARBNs are primarily issued to foreign companies wishing to operate in Australia.  Again, if the ARBN holding company is acting as the trustee of a trust with its own ABN, any registration should be lodged against the ABN of that trust.

Do not confuse an ARBN with an ABN – the two are quite different. 

If the organisation doesn’t have a 9 digit ACN, ARBN or ARSN then you will be asked to choose an appropriate category for your Grantor: Partnership, Body Politic, Trust, or Other.

Partnerships

The PPSA doesn’t care if this is a partnership of one or more individuals, a partnership between companies or a partnership between individuals and companies.  If the partnership has an ABN then use that number to identify your Grantor. 

If the partnership doesn’t have an ABN (not just that you don’t know it but that it hasn’t actually been issued with an ABN) then a registration should be lodged identifying the Grantor by the constituent parts of its partnership.  That is to say, if the partnership comprises two individuals then lodge the registration against each of those individuals stating their full names and dates of birth; if the partnership is between two companies then lodge the registration against each of those companies stating their ACNs.  

The PPSR allows for more than one Grantor to be identified on the same registration.

Bodies Politic

This is an all-embracing term for local, state and federal government entities.  The Government’s ABN Lookup facility provides an easy way of identifying such bodies if the way they’ve named themselves isn’t sufficient giveaway in itself:

Or

Many suppliers decide that the risks are sufficiently low when dealing with Government buyers not to bother lodging registrations against them, others may find that the terms of purchase they are required to accept do not include provision for any security interest that can be lodged on the PPSR.

Trusts

I won’t waste your valuable reading time with any more whinging regarding trusts and the idea that a trust is legally able to grant a security interest or indeed can be considered a legal entity in its own right, suffice to say that, for the PPSA’s purposes, a trust may be a discretionary trust, fixed trust, unit trust, trading trust, or any of a number of variations.  Again, the ABN Lookup facility can be useful here.

Others

We’re now left with everything else that doesn’t fall into one of the above categories which will include many charities, independent schools, sporting associations, strata plans and co-operatives to name but a few.

As far as the PPSA is concerned, it doesn’t matter if such organisations have an ABN; if they are not an individual, don’t have an ACN, ARSN or ARBN, and are not a partnership, body politic or trust, they need to be identified simply by the name of the organisation.

Whinge

Quite why the PPSA chooses to break the identification of Grantors into these arbitrary categories largely escapes me.  ASIC readily allows for searching its database for any 9 digit number it administers regardless as to whether it is technically an ACN, ARSN or ARBN – why does the PPSA care?

What benefit accrues from breaking down ABN holders into categories?  If a partnership can have registrations lodged against its ABN why can’t strata plans and co-operatives?  Why add extra hoops for registrants and searchers alike to jump through?  Why add additional opportunities for errors that could render registrations invalid?

Resources

This post is already long enough, so I’ll post a separate article providing some more links and hints for identifying the precise legal entity with which you are trading. 

Registering a Retention of Title Clause on the PPSR

Since the introduction of the Personal Property Securities Act (PPSA) your Retention of Title (RoT) clause is treated as a security interest.  Under the PPSA, any security interest over non-real estate property will be ineffective unless that security interest is perfected.   To all intents and purposes the only way to perfect a security interest is by registration on the Personal Property Securities Register (PPSR).

When do I need to register?

The PPSA provides for early registration in anticipation of a security interest being created; provided your anticipation is reasonable.  It could be considered reasonable, for example, to lodge a registration once a customer’s credit application had been approved but somewhat less reasonable to lodge a registration against someone on the grounds that they weren’t completely dismissive when you cold-called them last week!

Another consideration in determining how early to register is the fact that, where an administrator or liquidator has to determine the priority between two competing security interests, if all else is equal, they will give priority to the security interest  that was registered first and not to the security interest that was created first.

If you are supplying goods to be used as part of your customer’s inventory (eg, for on-sale, incorporation into an end product or consumed as part of a production process) then you should make sure your registration is lodged before your customer takes delivery of your product.  If you miss this deadline then your security interest will be ineffective against that delivery but, if repeat trade is involved, will be effective over subsequent deliveries.

Where the goods in question are non-inventory items you have a little bit more of a cushion, of up to 15 days, from when your customer takes possession of the goods.

How do I register?

I’ll cover setting yourself up as a Secured Party on the PPSR and identifying your Grantor correctly elsewhere on this blog so, for this article, I’ll just focus on that element of registration that relates specifically to describing your security interest.

I’ll look specifically at lodging a registration on the PPSR itself as, although there are third party providers who have more streamlined registration facilities (such as NCI), the guidance is readily transferable.

In answer to “What is the collateral type?” you should be selecting “Commercial” wherever you are trading with a business which has an ABN.  If you are selling timber to a home handyman who is building a pergola for himself in his back yard then that would almost certainly be classified as a Consumer purchase.

I’ve already written quite a bit on this blog about the differences between Transitional and Not-Transitional as well as the on-going arguments concerning the two – for now, let’s proceed on the basis that we are registering a security interest on a new customer and select Not-Transitional.

(Skipping the entry of your Secured Party Group number)

We’re now asked to describe our Collateral.

Collateral means the ‘thing’ that’s being used as security.  When you take out a mortgage your bank takes a security interest over your home – your house is being used as the Collateral for your mortgage.  If you don’t repay your mortgage the bank gets to collect their collateral.  Similarly, when you are selling your goods subject to a Retention of Title clause, your security interest is your ability to get your goods back if they are not paid for – your collateral is the goods you supplied.

While at first glance there seems to be quite a wide range of choices when it comes to describing your collateral, a second glance quickly reveals that there isn’t much of a choice at all!

Unless the goods you are supplying are motor vehicles, watercraft, aircraft or ‘agriculture’ the appropriate collateral class for RoT trading will be ‘Other Goods’.  Whether it be hose pipes or hair spray, footballs or fusion reactors, to the PPSR they are simply ‘Other Goods’.

Having selected ‘Other Goods’ click on the Use collateral class button:

And find yourself with the opportunity to enter a description of the goods you’re supplying.

While this is not a mandatory field, it is sensible to add some description here if for no other reason than to help third parties understand more about the nature of your security interest.  However, if you are too specific you risk leaving loopholes for others to exploit as well as making a rod for your own back should you later supply a product that wasn’t included on your original description. 

As a general rule I recommend something simple along the lines of “Collateral supplied by the secured party”.

Next you have to describe the duration of your registration:

At this point you’ll probably need to be reminded of the way in which the PPSR charges for registrations.

For a registration of up to 7 years the PPSR charges $8.00

For a registration of between 7 and 25 years it charges $40.00 and,

For an indefinite registration it charges $140.00.

Most of the companies I advise choose to register for 7 years.  A registration can always be extended later, if necessary.

We now come to, potentially, the most dangerous part of your registration; the bit that will either help you achieve a super-priority for your RoT or, possibly, invalidate it altogether.  And yet the PPSR presents these to us, almost as an afterthought, as if it is not something that should trouble us at all.

Purchase Money Security Interest 

Otherwise known as a PMSI (pronounced ‘pimsy’), this is the box that needs to be ticked in order to give your humble RoT a super-priority over virtually all other claims.  A PMSI is a security interest over collateral that secures its own purchase price.  That is probably not expressed in a familiar manner but it is, effectively, the very definition of what a Retention of Title clause is all about.  If you don’t tick the PMSI box then you will not get your super-priority rights.

Inventory

I’m sure the PPSR thinks it’s being helpful by suggesting we look up part 9.5 of the Personal Property Securities Act 2009 if we want to know the definition of inventory but I can tell you right now that you’re more likely to come away from the experience with a headache than any sort of enlightenment!

Unless you are engaged in something particularly fancy then you should be OK with the definition I gave for inventory earlier on in this piece, ie, goods that are for on-sale, incorporation into an end product or consumed as part of a production process.   If you are selling goods that will be treated as inventory items by your customer and do not tick this box then you risk invalidating the whole of your registration.

Control

It is difficult to think of scenarios where you might be selling goods subject to a Retention of Title yet still retain control of those goods – it’s the sort of area that is more likely to crop up with banks holding a security interest over the bank accounts held with them.  I’ve not yet had occasion to recommend any RoT supplier tick the ‘subject to control’ box.

Subordinate

It is a little strange that on a register all about trying to achieve priority you have a box that allows you to concede priority to another registration.  Again, I’m struggling to think of a suitable scenario where this would be an issue for an RoT supplier and, as with issues of control, I’ve not had occasion to recommend any RoT supplier tick this box.

Proceeds

One box that should definitely be ticked by the RoT supplier is the Proceeds box.  When the PPSA was introduced it gave a ‘free’ extension to proceeds to all RoT suppliers.  If your goods have not been paid for but your customer has on-sold them then your priority security rights can extend to any monies arising directly or indirectly from that on-sale.   Tick this box!

You have an opportunity to put your own text into the proceeds description box but in most cases it makes more sense to leave it blank so the default wording “all present and after acquired property” can apply.

Once this is done, the collateral stage of the registration is complete and you move on to the final step of identifying your Grantor/Customer – something I have addressed in previous articles but will probably summarise again in a subsequent post.

As usual, if you have any queries or concerns, feel free to use the comments area below.