When should a PPSR registration be lodged?

In general terms, the answer is ‘as soon as possible’ and, in this context, that means, as soon as the supplier has a reasonable belief that they may be doing business with the grantor in question and that such business will involve the granting of a security interest.

In order to avoid falling foul of the Corporations Act, the supplier’s registration should be lodged within 20 business days of their security agreement being formed. For trade credit suppliers, that security agreement will usually be represented by the signing of the initial credit application by which the supplier’s Terms & Conditions of trade are accepted (provided, of course, that those T&Cs contain the supplier’s security rights – usually in the form of a Retention of Title clause).

If the registration is not lodged within that 20 business day period, the supplier runs the risk that, if their customer falls insolvent in the next 6 months, a liquidator will be able to use section 588FL of the Corporations Act to, effectively, ignore the registration.

I’ve written at greater length on the implications of section 588FL HERE.

Obviously, if the supplier misses that 20 business days window, they should still go ahead and register on the PPSR as soon as possible, it just means that they’ll need to keep their fingers crossed that a liquidator doesn’t get appointed during the next 6 months – once 6 months have elapsed with no liquidator in sight, the supplier can relax.

If we put aside for one moment the Corporations Act provisions, the other key timing issue concerns the effectiveness of your Purchase Money Security Interest (PMSI) rights.

As we know, Retention of Title suppliers, those providing goods on a Consignment Stock basis, and long-term leasers of equipment automatically qualify for having the security arrangements that those trading practices represent designated as PMSIs, thus entitling them to a super-priority over any earlier (or later) registered general security interests.

However, in order to ensure their PMSI right is effective, the registration must be lodged within specific time frames:

Where the Collateral is Inventory	Before the grantor takes possession of the goods
Where the Collateral is not Inventory	Within 15 business days of the grantor taking possession of the goods

Any registration lodged outside of those time frames will still be valid, but it won’t benefit from the super-priority that the PMSI designation would otherwise afford.

If repeat supplies are involved, suppliers should remember that even though they may have registered too late for the first few deliveries, a registration will still be effective over later deliveries.

A long-standing credit agreement is not enough to determine Transitional status

The 7^th March 2014 saw a little bit of clarity being brought to one of the PPSA’s notorious grey areas.  

The clarity came in the form of a judgment in the Supreme Court of Victoria and the grey area concerned the applicability of the PPSA’s transitional rules to Retention of Title clauses enshrined in long-standing Terms & Conditions.

The case concerned the May 2013 collapse of the cleaning company, Swan Services Pty Ltd and a claim by one of its creditors, Central Cleaning Supplies (Aust) Pty Ltd, that they should be able to rely on their Retention of Title clause to recover unpaid for equipment.

 

The liquidators argued that, since the introduction of the Personal Property Securities Act (PPSA), any goods subject to an ‘unperfected’ security interest would vest with them and, as Central Cleaning Supplies had not perfected their Retention of Title security interest on the Personal Property Securities Register (PPSR), the equipment they had supplied would be subject to the liquidators’ control.

Central Cleaning Supplies countered with reference to the PPSA’s Transitional Arrangements – a means by which security interests arising from long-standing agreements could be effectively ‘grandfathered’ into being ‘perfected’, without need for formal registration, for up to 2 years.  While the 2 year Transitional Period has now ended it was certainly applicable at the time Central Cleaning Services was challenging the liquidators for return of their equipment.

The case was put before Justice Ferguson to find the correct interpretation.

In her deliberations it was determined that, although Swan Services had entered into a credit agreement with Central Cleaning Services before the PPSA came into effect, the security represented by Central Cleaning Services’ Retention of Title clause was not actually incorporated into either the credit agreement or the standard terms & conditions embraced by that credit agreement.  Rather, the Retention of Title clause appeared in a Conditions of Sale document that formed part of individual invoices issued as and when deliveries were made.

Therefore, the initial credit agreement did not act as an overarching agreement out of which individual security interests were created (as would be necessary for the transitional arrangements to apply) but instead each invoice was held to create its own security agreement and security interest.  In order to perfect its Retention of Title clause, Central Cleaning Services could not, therefore rely on the PPSA’s transitional arrangements and should have registered their security on the PPSR as a non-transitional interest.

While it might often be convenient to refer to the date of a credit application in order to decide if subsequent dealings create transitional or non-transitional interests suppliers must not lose sight of the fact that it is the acceptance date of the actual document that imposes the security condition that will be the determining factor.

Where there is any doubt I would strongly recommend a non-transitional registration.

Central Cleaning Supplies (Aust) Pty Limited v Elkerton and Young as liquidators of Swan Services Pty Limited (in Liquidation) [2014] VSC 61