PPSR - Ticking the Inventory Box

Should I designate my goods as ‘Inventory’ or not?

The correct answer depends upon how your customer will be dealing with the goods being supplied.

It is a common misunderstanding that whether the goods are 'inventory' or not depends upon how they are treated by the supplier.  I've heard suppliers, when asked why they didn't designate their goods as inventory, say, "Because they weren't inventory items, we had to make them specially".

Under the PPSA, an item of property can be inventory if sold to one business or non-inventory when sold to another - it all depends upon the use to which the buyer will put the property in question:

• If the goods are for on-sale, 

• for inclusion into an end-product that will be on-sold, or

• consumed as part of the customer’s business (eg, fuel for a transport company, or disinfectant for hospital), 

then they should be designated as ‘Inventory’.  Otherwise, the inventory designation should be left blank.  

While the official review of the PPSR recommended doing away with the 'inventory question' because of the confusion it causes, for the time being, it is still required as part of the registration process and, if you get it wrong, you will find it difficult to enforce your registration.

Government's Response to the PPSR Review

Bruce Whittaker completed his formal review of the PPSR in March 2015 and his report, containing 394 recommendations, was put to Parliament at that time.  I first wrote to the Attorney Generals' Department in September 2016 asking what progress had been made in assessing the review's recommendations and have begun making something of an annual habit of it ever since.

The request for information and the formal response from the AGD after 18 months consideration can be found HERE, and the response after 30 months can be found HERE.  Some 44 months on from the PPSR Review's release I've received the following response to my latest enquiry requesting an update on the progress of its consideration:

Thank you for your email about the Government’s response to the Review of the Personal Property Securities Act. I am sorry for the delay in responding to you.

Regarding timelines, while the department has made considerable progress on the response to the Review, we are currently consulting with a range of industries and stakeholders regarding a number of the more complex recommendations in the Review.  Following the conclusion of this consultation, the Government intends to release its response to the Review. This is to provide stakeholders with notice of the Government’s position on the review as soon as possible. Following this, the department will undertake broader consultation on the corresponding exposure draft legislation. We are not in a position to provide a release date at this time, but will keep you updated.

With all due respect to the AGD, this doesn't represent any advance on their update last year in which they advised:

The Government intends to release an Exposure Draft of a Bill to amend the Act and a prototype PPS Register, for public consultation. Stakeholders will have an opportunity to provide comment on the Bill and the Register before the Government takes further action to implement the recommendations of the Review.

The Government will make further announcements about the timing of public consultation on the Bill and Register.

If anything, the latest response seems to represent something of a step backwards.

At this stage, it might be worth pointing out that it 'only' took around 2 years from the passing of the 2009 Act to commencement of the Register in the first place (not that anyone considered that to be particularly quick) and we are now approaching 4 years from the presentation of the Review's findings without the Government having even released a response for consultation let alone an implementation strategy.

With so many finding the registration of their security interests on the PPSR an overly complicated exercise fraught with the possibility of error, it is disappointing that there is such delay in implementing recommendations designed to simplify the process and remove many of the Act's pitfalls.

Progress of the PPSR Review Report - UPDATE

I wrote to the Attorney-General's Department (AGD) in September 2016 asking what progress had been made during the 18 months following the tabling in Parliament of Bruce Whittaker's final report of the Review of the Personal Property Securities Act.  

My request for information and the AGD's response were the subject of a post of mine at the time - see here.

A year later, with no action evident from the AGD, I thought I'd try again.  As before, I reproduce below my request and the AGD's subsequent response.

My request (27/09/2017):

It's been 30 mths since Bruce Whittaker's Report of the Review of the Personal Property Securities Act was tabled in Parliament.

What progress has been made since that time in moving to implement its recommendations, both legislatively and operationally? 

 I'd also appreciate an indication as to the timetable for implementation. 

I am sure that the Gov’t is keen to ensure that all parties are given due consideration and that reform must be executed with care and diligence. I also appreciate that the response to the review must be progressed as a comprehensive package rather than on an ad hoc basis in order to achieve its aims to reduce complexity and burden without prejudicing the interests of any party.

However, 30 mths have now passed with only one of the Review’s 394 recommendations having any reflection in subsequent legislation.  Surely, by now, an efficient Gov’t administration will be in a position to provide information on implementation timeframes and intentions.

The AGD's response (31/10/2017):

Thank you for your email of 27 September 2017 regarding implementation of the Review of the Personal Property Securities Act 2009 (the Review).

Since the Review was tabled in Parliament on 18 March 2015, the Government has prioritised development and passage of the Personal Property Securities (PPS Leases) Act 2017 (the PPS Leases Act). The PPS Leases Act has reduced the regulatory burden imposed by the Personal Property Securities Act 2009 Act (the Act) on the hire and rental industry by increasing the term of a PPS lease from at least one year to at least two years, providing that an indefinite lease is not a PPS lease unless and until it has been in force for two years, and making other amendments.

The Government has given close consideration to the 394 recommendations made by the Review and conducted targeted consultations with stakeholders. The Government intends to release an Exposure Draft of a Bill to amend the Act and a prototype PPS Register, for public consultation. Stakeholders will have an opportunity to provide comment on the Bill and the Register before the Government takes further action to implement the recommendations of the Review.

The Government will make further announcements about the timing of public consultation on the Bill and Register.

I hope this information is of assistance.

Taking the AGD's response at face value, a new PPSR seems to be on the cards rather than merely some tweaks to the existing register!

By way of recap, some of the changes recommended in the review included removing the need to designate security interests as PMSIs or as the supply of items for inventory, as well as taking away the requirement to identify grantors that are trustees of trusts by their trust's ABN.

I'll probably write again next year to the AGD with a follow-up enquiry regarding progress on this matter, but, in the meantime, I'd be grateful if any stakeholders that have been on the receiving end of 'targeted consultations' could get in touch with me and, perhaps, shed some light on the manner in which the AGD's thinking has been progressed.

PPSR - Requesting an Amendment or Discharge

Recent posts have concerned themselves with how to conduct searches of the PPSR and how to set up an alert to be notified when a new registration has been lodged against you.

It seems a natural follow on to now look at your options should you find that someone has lodged a registration against you that you don’t believe should be there.

The most likely scenarios are where:

• Trading that had given rise to a security interest has been fully concluded with no reasonable expectation of further trading in the foreseeable future; or
• A trading partner (or indeed, anyone) is asserting a security right to which you have never agreed.

While a registration without a solid underlying security interest is, effectively, worthless it nevertheless has the potential to cause problems – particularly should you find yourself having to negotiate a loan with a fussy financier or deal with an overly cautious conveyancer when trying to sell some property. 

Your first course of action should be to write to the Secured Party that lodged the registration. 

While, for the sake of the legislation, you need to write to the person/contact point identified in the registration as the Address for Service, there is no harm in also involving a more familiar contact in the correspondence if you feel that might be helpful to your cause.

However, I would strongly discourage adopting an overly aggressive stance and threats of legal action and penalties should definitely be avoided.  I’ve had a number of such approaches referred to me and have found that, rather than intimidate the recipient, they have invariably provoked a desire on their part to dig their heels in and devote unnecessary time and effort into trying to find fault with the demand!

All that is needed is a short, polite letter, referencing the registration number in question, suggesting that the registration is no longer required/valid and requesting its discharge.  Importantly, the letter should also add that it is being sent in accordance with section 178 of the PPSA.

Something along the following lines should suffice:

Dear Sirs,

REQUEST TO DISCHARGE REGISTRATION 201401010007553

It has come to our attention that you have lodged the above registration against us on the Personal Property Securities Register.

We have reviewed our dealings with you and find them to have been fully concluded with no outstanding obligations; consequently we request that you effect the discharge of this registration at your earliest convenience.

We will review the situation in 5 business days’ time.

Please note that this letter has been sent in accordance with section 178 of the Personal Property Securities Act.

Yours faithfully… etc

Or, depending on the circumstances, the red text could be replaced with something along the following lines:

We have reviewed our dealings with you and find that no security interest of the nature described in your registration has been agreed by us

If your section 178 request to the Secured Party fails to elicit a satisfactory response, your next step is a section 180 request to the PPSR.

While the PPSA does not stipulate the length of time that should be available to a Secured Party to attend to your request, taking the next step of approaching the PPSR directly requires that they have had at least 5 business days to deal with your request.

To assist you in making your s180 request, the PPSR has a specially designed form for you to complete.  This can be found at:

Amendment Statement download

The form is comparatively straightforward although I’ll quickly run through the essentials.

All this information can be taken from the details of the registration itself.  If more than one Secured Party was listed on the registration (as may often be the case), you’ll need to complete one of these forms for each.

The form is asking for your details here – you are the applicant and, certainly in the context of this post, you are the ‘person’ identified as the Grantor in the registration.

Depending upon the circumstances, the response to the final question in this section:

Will depend upon whether you still have ownership of the goods in question or have used them up or on-sold them.

• If you still have ownership then your interest is an ‘Other Interest’,
• if you have on-sold them on terms that mean you still have a right to them in the event of non-payment then you have a ‘Security Interest’,
• but if you have used them up or on-sold them and have been paid in full, you have neither a ‘Security Interest’ nor ‘Other Interest’.

The amendment demand to which the first tick box refers will be the letter you sent to the secured party asking for the discharge – as you can gather, this box should be ticked and you should attach a copy of the letter.

In the circumstances we’ve been looking at in this post, box (a) should be ticked.  However, if you are seeking an amendment to a registration in respect of a legitimate security interest and merely wish to ensure certain specific collateral is excluded from its terms then (b) would be more appropriate.

The amendment demanded will, invariably, be the discharge of the registration.

Following the relatively self-explanatory declaration on the final page(s) the completed form should be sent to forms@ppsr.gov.au.

Once the form is processed by the PPSR, it will write to the Secured Party inviting them to comment on your demand.  The Secured Party has 5 business days to comment and, in the absence of any response, the PPSR will discharge the registration (or amend it) as per your request.

If the Secured Party responds, within the 5 business days permitted, to the effect that the registration should stay in place as per its current terms then, unless the Secured Party’s explanation is transparently spurious to the PPSR Registrar, your only remaining recourse will be to the Courts (section 182) – it would be exceedingly unusual if this became necessary.  But if it did, you’ll need to get professional legal assistance.

UPDATE 30th July 2021: The PPSR has revised its Amendment Demand form and issued its own guidance as to the amendment demand process.  Please see my more recent post HERE.