How to Renew a PPSR Registration

As seen in my last post, we're rapidly approaching the time where many suppliers will be needing to renew registrations they put in place shortly after the start of the PPSR in 2012.

Renewal should be a straightforward process. 

Individual PPSR Brokers will probably have different approaches to the activity but the following shows the step by step process involved in renewing your registrations directly on the PPSR website.

In order to attempt this, you will need to have already established an account with the PPSR – this is a requirement for setting up an SPG but might have been avoided if the supplier’s SPG was set up for them by an intermediary that already had a PPSR account.

The following steps show the process once you have navigated to the PPSR and logged into your account.

Access your Secured Party Group (SPG) and click on the Group Registrations tab:

Use the 'Other filter options' to select a suitable range of expiry dates:

This will generate a screen showing all registrations due to expire within the selected time frame.

Select the registration you want to renew and click on the renew button:

Unfortunately, for reasons that are not entirely clear, if you make multiple selections, ie, you have a number of registrations that need to be renewed, the ‘Renew’ button becomes greyed out and unavailable!  In other words, registrations can only be renewed one-by-one, so it could be a bit of a slog if you have a lot of registrations expiring at the same time.

Once the Renew button is clicked you’ll be asked to choose a new expiry date and be given the opportunity to review the details of the registration being renewed:

It’s a little annoying that while the PPSR allows for simple selections for 25 year and indefinite registrations, it doesn’t allow for a simple 7-year registration – instead, the PPSR requires the user to manually enter a 7-year expiry.

You should also note that, when setting the expiry date for, say, 7 years, the 7 year period counts from the current day’s date and NOT the original expiry date. 

After that, it’s a simple matter of confirming the renewal and paying the renewal fee (which will be exactly the same as if a new registration were being lodged):

While it should only take a minute to renew a registration, make sure you don’t cut things too fine and miss the expiry date.  Registrations that have already expired cannot be renewed!

Obviously, a third party PPSR Services provider should be able to provide bulk renewal facilities along with an alert process warning of impending expiries and their own renewal processes are likely to work quite differently.

UPDATE: AFSA has now told me that, following my whinge suggestion that a simple 7-year expiry selection should be available for renewals, they have implemented that change.  Renewals will now be a little bit easier... which is nice.

Planned Increases to PPSR Charges

The Insolvency and Trustee Service Australia (ITSA) - the organisation that operates the PPSR - has recently issued a Cost Recovery Impact Statement (CRIS).  

While the purpose of the CRIS is to demonstrate how ITSA recovers its PPSR related costs it also includes a proposal for increases to its fee structure for those registering and searching on the Register.

ITSA has undertaken a review of its PPSR operations in the first 12 months, including a comparison of estimated transactions volumes and revenue. Revenue in the current financial year is tracking approximately 4% below the initial forecast, due to the mix of transactions being more weighted to the lower end of the spectrum than expected. 

The proposed fee structure reflects price increases across each category. Search fees are proposed to increase by $0.30 per transaction and registrations ranging from $0.60 (for the highest volume category) to $10.00.  

Thus:

Duration	Current Charge	Proposed Charge
Up to 7 years	$7.40	$8.00
7 to 25 years	$37.00	$40.00
No stated end date	$130.00	$140.00
Minor amendments	$3.70	$4.00
Other amendments	As per registration charges
Searching the Register	$3.70	$4.00

Due to very low demand and the availability of alternative options, the ITSA National Service Centre will no longer be offering services for registrations and amending finance statements.  Apparently, out of a total of 1,466,308 registrations in the first year of operations, only 21 were lodged through the National Service Centre.

The new charges are scheduled to be introduced for the 2013/14 financial year.

PPSA & Consignment Stock

Under a Consignment Stock arrangement Company A supplies goods to Company B without passing ownership until such time as those goods are used or sold by Company B – at that point in time a payment obligation between Company A and Company B is created.  Any unused/unsold goods will usually be returned to Company A.

The Personal Property Securities Act treats the structure of Consignment Stock arrangements as providing a security interest for Company A in the goods supplied (PPSA Sections 12(2)(h) and 12(3)(b) refer).

The PPSA goes on to allow for such a security interest to be designated a Purchase Money Security Interest (PMSI) thus allowing Company A a greater priority claim over the goods they  supplied than, say, the holder of a general security agreement over all the assets of Company B (PPSA Section 14(1)(d) refers).

So, as with Leasing arrangements and Retention of Title clauses, it is not necessary for the terms of a Consignment Stock arrangement to specifically describe the agreement as a form of security for it to nevertheless be considered as such in the event of an administrator being attached to Company B.

Unfortunately, this can be something of a double-edged sword. 

Whenever the PPSA provides for an arrangement/agreement to be treated as a security interest it also allows for an administrator to vest the goods/collateral in question along with the rest of the assets of the debtor company UNLESS that security interest has been correctly registered on the PPSR.

Bringing this home quite strikingly was the entry into liquidation last month of Jacksons Rare Guitars Pty Ltd in Annandale, in Sydney’s inner west.  At the time a voluntary administrator was first appointed, Jacksons had over 100 clients who were using Jacksons to sell their instruments on a consignment basis representing almost $850,000 of the total stock.

In a pre-PPSA world the individual consignors could have relied upon consignment notes to prove ownership and claim back their instruments but, since PPSA, if they failed to register their consignment on the PPSR (and I’m not aware of any who did) their precious guitars would be vested by the liquidator with the rest of Jacksons’ stock and sold off for the benefit of, primarily, other creditors.  Unfortunately, it is the post-PPSA scenario that is currently playing itself out in Annandale.

While we continue to bemoan the poor promotion the Federal Government has engaged in regarding letting small and medium sized businesses know about the implications and requirements of the PPSR let us spare a thought for the lack of promotion towards the general public who may first become aware of the Register at the same time as they’re being told that they can’t have their guitar back!

When Should a PPSA Registration be Discharged?

Section 151 of the PPSA allows for registration of a security interest where the Secured Party has a reasonable belief that the collateral identified in the registration will become the subject of a valid security interest in their favour.

Because of the requirement under the Act for security interests taken in inventory to be registered in advance of the debtor/grantor taking possession there will inevitably be circumstances where a registration is in place but not yet applying to specific collateral held by the debtor/grantor.

This is particularly the case in circumstances involving on-going supply, or the reasonable expectation of on-going supply.

If a supplier is approached to open a credit account for a new customer then, provided that credit account includes a provision for a security interest (such as a Retention of Title clause), the opening of that account should be deemed to create a sufficiently reasonable belief in the likelihood of a security interest attaching to collateral thus satisfying the requirements of Section 151.

Similarly, unless it has been specifically stated that the sole purpose of that new credit account is to accommodate a one-off purchase, it would not be unreasonable for that supplier to anticipate a measure of continued/repeat business once the initial purchase under the account has been completed.

However, where there are no longer any reasonable grounds for anticipating on-going business/orders (and there are no monies outstanding on the account) then the registration should be discharged within 5 business days from the point at which there stopped being reasonable grounds for anticipating on-going business.

A clear and unambiguous point at which it could be determined that ‘reasonable grounds’ ceased to exist would be the date the Secured Party received confirmation from the debtor/grantor that no further purchasing was anticipated, possibly accompanied by a request to discharge the registration.  At such point the Secured Party would have 5 business days to discharge the registration.

Unfortunately, real life often does not present us with ‘clear and unambiguous’ events and it is quite likely that many suppliers will have open credit accounts on their books that have been inactive for some time.  At what point does it no longer become reasonable to sustain a belief in the likelihood of further trade (and thus the imminent attachment of their security interest)?  Disappointingly, the PPSA provides no guidance in this and legal precedents have yet to be set so we may well be entering ‘how long is a piece of string’ territory.

However, before suppliers relax too much they should note that part 4 of Section 151 places the burden of proof firmly on the shoulders of the Secured Party (supplier) in establishing the reasonableness of maintaining a registration in the absence of any current trading!

While this shifting of the burden of proof to require the ‘accused’ to prove their ‘innocence’ may come as a rude awakening to those whose legal expertise comes from watching episodes of ‘Law & Order’, those who have to deal regularly with liquidators or the Taxman will simply see this as par for the course.

Although I appreciate that it is much more easily said than done, suppliers’ primary defence against claims of unreasonable registrations will be tight and efficient credit control procedures, regular monitoring of accounts and good communication with customers. 

At a bare minimum credit departments should make sure they have “Discharge PPSR Registration” as a priority item on their check-list whenever an account is closed.

The relevant portions of Section 151 referred to above are reproduced below:

151  Registration—belief about security interest

Requirements for collateral to secure obligation etc.

             (1)  A person must not apply to register a financing statement, or a financing change statement, that describes collateral, unless the person believes on reasonable grounds that the person described in the statement as the secured party is, or will become, a secured party in relation to the collateral (otherwise than by virtue of the registration itself).

Civil penalty:

                     (a)  for an individual—50 penalty units;

                     (b)  for a body corporate—250 penalty units.

             (2)  If a financing statement, or a financing change statement, that describes collateral has been registered on the application of a person, the person must, within the period covered by subsection (3), apply to register a financing change statement to amend the registration to end its effect with respect to the collateral, if:

                     (a)  the person described in the statement as the secured party has never, since the statement was registered, been a secured party in relation to the collateral (other than by virtue of the registration itself); and

                     (b)  there are no reasonable grounds (or there are no longer any reasonable grounds) for the belief mentioned in subsection (1).

Civil penalty:

                     (a)  for an individual—50 penalty units;

                     (b)  for a body corporate—250 penalty units.

             (3)  The period covered by this subsection is as soon as practicable, or 5 business days, whichever is earlier, after:

                     (a)  if there never have been, since the statement was registered, reasonable grounds for the belief mentioned in subsection (1)—the day of the registration time, or the amendment time, for the financing statement or financing change statement; or

                     (b)  if there are no longer any reasonable grounds for that belief—the day when there stopped being reasonable grounds for the belief.

             (4)  A person who wishes to establish that there were reasonable grounds for the belief mentioned in subsection (1) (at any particular time) bears an evidential burden in relation to the matter.

The PPSA and Retention of Title

There are a whole heap of introductory articles written about the Personal Property Securities Act (PPSA) and the Personal Property Securities Register it created. Most start off by telling you that it is “one of the most significant commercial law reforms in recent times” and that it has “changed the concept of ownership as we know it”.

Hyperbole aside, the PPSA certainly does shake things up a bit, but if your concept of ownership is built around the old maxim of possession being nine tenths of the law then you may find that you're not quite as wrong now as you used to be.

Under a Retention of Title clause (sometimes referred to as a Romalpa clause by people who like to show off their knowledge of UK insolvency law cases from the seventies) a seller writes into their contractual terms that they will retain ownership of the goods being sold until the purchaser finishes paying for them. The purchaser may take possession of the goods and make use of them but legal ownership will not pass to the purchaser until they have fulfilled their payment obligations to the seller.

Should the purchaser go into receivership or liquidation while the Retention of Title (RoT) is still in play then, in a pre-PPSA world, the receiver should respect the seller's title to the unpaid goods and allow the seller to recover the unpaid-for portion of the goods before the receiver then goes on to dispose of the remaining assets of the purchaser as they see fit.

Now that the PPSA is in play, however, the RoT is no longer treated as a mechanism of ownership but as one of security. The logic being that retaining title was merely a means to protect the seller's position with regards getting paid and as such it should be dealt with as an instrument of security and compete with all the other security interests other creditors may have against the purchaser.

So far so good; but how does the RoT seller's security interest compete with the interests of other creditors?

The traditional approach would be to adopt a 'first in time' principle. But to do that would be to give all the priority to, say, the purchaser's bank that has probably had a general security interest in place attaching to all of the purchaser's assets since the purchaser first came into being. A 'first in time' approach would seriously disadvantage the seller in this instance and, indeed, if the seller had been aware of the bank's existing interest the seller may well have decided not to conduct business on credit terms with the purchaser in the first place.

In order to get around the problem of an early security holder stifling future trade and to try and ensure some parity between pre and post PPSA environments, a special category of security interest was invented – the Purchase Money Security Interest (PMSI – it rhymes with 'flimsy' if you feel like using the term in conversation).

A PMSI applies when a security interest is taken in collateral to the extent that it secures all or part of its purchase price; i.e. if you don't pay me for this widget I get to take the widget back; eg, goods sold under a Retention of Title clause.

While the 'first in time' approach applies to most security interests, those with a PMSI designation effectively leapfrog all others and certainly rank ahead of more general security interest holders such as the purchaser's bank. Thus a receiver now has to ensure that a PMSI holder's security interest is dealt with first before they go on to dispose of the remaining assets of the purchaser as they see fit.

All well and good. The particularly prolix PPSA has, at great expense, returned us to the position we were in before it was enacted. We can now give one last admiring shake of the head as we contemplate the intellectual powerhouse that is our Government and promptly forget about the whole thing and get back to simply doing business. Or not.

Unfortunately for those of us who are happiest when they don't actually have to do anything, the PPSA also brought in the idea of 'perfection'. Note: There are a whole load of little jokes and ironies that will go through your mind at this point; don't worry, it's inevitable when the term 'perfection' is used in the context of Government legislation - just take a moment and then we'll carry on.

Under PPSA it's not enough that a security interest exists, in order to be effective against other security interests it needs to be perfected.

The most common form of perfection as time goes by will be by registration. For this purpose the PPSA created the Personal Property Securities Register (PPSR). The PPSR exists as computer servers in air-cooled splendour somewhere in the bowels of Canberra although a call-centre operating out of Adelaide lends it a more human aspect. The PPSR serves as both a place for security holders to register their interests and a facility for interested parties to search to see what registrations exist either for a specific purchaser or for specific goods (such as motor vehicles and aircraft).

Registrations are encouraged to be made via the PPSR's own web site (www.ppsr.gov.au) and the registration process is claimed to be comparatively straightforward (presumably the comparison is with completing a combined tax return and insurance claim) although there are third-party providers who can make this process much easier. NCI (www.nci.com.au) probably provides the most user friendly facility primarily by focusing to a large extent on RoT security holders and simply not bothering at all with consumer securities.

So what happens if you don't register?

I mentioned earlier that PMSI security holders automatically jumped to the top of the heap when it came to the ranking of security interests. Bottom of that heap, however, are all those security interests that have not been perfected. An RoT clause may have been drafted by the legal profession's equivalent of Shakespeare but if the security interest isn't perfected it could end up ranking behind something scribbled out on the back of a beer mat.

So if you want an RoT you put in place today to provide you with the same strength of security you would have had with it pre-PPSA then you must register it on the PPSR.

There is a safety net for security interests that were already in place by the time the PPSR came into operation (30^th January 2012). These are termed 'transitional' security interests and are deemed to be perfected by legislation until 30^th January 2014.

At the time of writing there is an assertion by the receivers of Wow Audio Visual that transitional security interests perfected by legislation don't apply to deliveries made after 30^th January 2012 but this is clearly a nonsense and will undoubtedly be challenged in the courts if the receivers fail to take a more sensible line.

Although I'm reluctant to make a rod for my own back, coming up we'll have discussions on the application of the PPSA to RoT All Monies clauses, proceeds and commingling as well as PPS Leases, consignment stock and lenders PMSIs among other things.

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All a bit of a mess

When the Personal Property Securities Act was passed in late 2009 it was intended that the  National Register it needed to create would be introduced in May 2011.  It therefore seems strange to suggest that its eventual introduction on 30th January 2012 (after an earlier extension to October 2011) showed all the hallmarks of a rushed affair.


Aside from all the little cosmetic issues with the Register (links not working, Help buttons that popped up with useful guidance such as "insert help text here") the Register simply did not work for much of its first week. 


I remember the fun we had in our office early in February calling out from our cubicles "Is the Register up yet?", "No",  "Hang-on, it's up now!", "Oh no, it's down again". Happy times.


It was only later we realised that it wasn't just us members of the public and business community that were having problems.  The intra-governmental transfer of registered charges from ASIC's database to the PPSR had also hit something of a snag.  It wasn't until mid-March that we discovered that some 38,000 satisfied charges wrongly appeared on the PPSR as current charges with an additional 6,000 charges not appearing at all!  A further 25,878 company charges with multiple secured parties did make it across to the new register but with many of them only showing a single secured party.


Even when details of a company charge have made it across to the new register in one piece we find that some identify the chargee or grantor by ACN, some by ABN and others by company name even though the PPSA rules require grantors with an ACN to be registered solely by that number.  This will virtually necessitate interested parties to conduct at least three searches (by ACN, ABN and Name) for every grantor they are curious about (each search will, of course, attract its own fee from the Register).


While it is easy to get distracted by the practical problems the Register is having in applying their registration rules we shouldn't lose sight of the fact that those rules laid down in the Act itself look pretty flawed in the first place!


If a grantor has an ACN then the security interest registered against it should identify the grantor by that ACN.  That is clear and understood.  


If the charge is against a partnership then that partnership should be identified by their ABN.  That is also clear and makes sense.  


If, however, the charge is against an organisation such as co-operative, a strata plan, sports association, charity, church group or any organisation incorporated under state law (rather than under the Corporations Act) that does not have an ACN but does have an ABN then one would think that the ABN should be used to identify that organisation.  Unfortunately, the answer is 'No'; in such cases the grantor needs to be identified by Name only.


I suppose there could be an argument suggesting that the organisation could use more than one ABN or that the ABN does not sufficiently 'define' the organisation in the same way as an ACN defines a company, but does that same argument not also apply to partnerships?


Last (for this blog entry) but not least,the PPSA also encourages registrations to be made against Trusts which, as most people in business probably know, do not have the legal capacity to enter into contracts nor, indeed, to grant security interests!  


So, to recap briefly, we have a mess of a Register administering rules laid down by a mess of an Act.  


In any other circumstance I'd recommend we all avert our gaze and ignore the whole embarrassing thing; unfortunately, mess or not, the PPSA is not going to go away and will have way too much impact on the manner in which business is conducted in this country for the foreseeable future for us not to pay it a great deal of attention.


In further blog posts I hope to be able to help clarify many of the twists and turns of the PPSA that may trip the unwary and try and make sense of what, in many ways, is all a bit of a mess.


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