Amendment Demands - updated process/forms

 I published a guide to issuing amendment/discharge demands in May 2017 - you can read that article HERE.  

The PPSR has now issued a sample amendment guide themselves (available HERE) as well as a guide to its dispute process (available HERE).

They have also launched a new amendment statement form "to help simplify the strict legal process required when disputing a PPSR registration"  

The new form is a little more user friendly and can be found HERE.

In short, if one of your suppliers or financiers is maintaining a registration against you that you think is incorrect or should no longer apply to your business, you must first contact them to explain your reasoning and to request that they remove (or amend) their registration.  In many cases a relatively friendly approach by phone or email will be sufficiently effective, however, if that fails to achieve the desired result, a formal amendment request should be sent - as per the example in the PPSR's sample amendment guide.

You should then give your supplier/financier 5 business days to respond.  Failing receipt of a satisfactory response within that timescale, you can use the PPSR's new Amendment Statement form to formally request the removal or amendment of the contentious registration.

The PPSR's tips for the process can be downloaded from HERE.

Proposed Fee Changes

On the 11^th April the Australian Financial Security Authority (AFSA), which operates the PPSR, issued a consultation document regarding changes to the PPSR’s fees intended to take effect from 1^st July 2018.

With the PPSR having, effectively, earned back its own development costs in its first 3 years of operation, its fees are now, pretty much, only there to ensure it covers its own running costs.  Given a steady growth in registration activity, AFSA believes that it can reduce its fees and yet still cover its own costs for the next few years and has thus proposed the following reductions:

Activity	Current	Proposed
7 year registration	$6.80	$6.00
7 to 25 year registration	$34.00	$25.00
Indefinite registration	$119.00	$115.00
Searches	$3.40	$2.00

The consultation document is silent on the matter of fees for ‘Minor Amendments’ and the reissue of Verification Statements.

Minor amendments include changes to:

• Free text description (collateral description)
• Subordination Indicator
• Giving of notice identifier
• Proceeds Indicator and description
• Vehicle Registration Number (i.e. the number plate of the vehicle)
• Aircraft Nationality
• Aircraft nationality code and registration marks assigned pursuant to the Chicago Convention (where not used as a serial number)

Minor amendments and the reissue of Verification Statements are currently charged at $3.40 each.  I’ve written to AFSA querying these omissions.

The consultation document can be found at https://www.ppsr.gov.au/cost-recovery-implementation-statement with any comments required to be forwarded to stakeholders@afsa.gov.au by 6pm on Friday 4^th May.

UPDATE: AFSA has now advised that 'Minor Amendments' such as changing Collateral Descriptions will (should the proposed new charges be accepted) no longer attract a charge from the PPSR.  Similarly, if the proposed new fees are accepted, the reissue of Verification Statements will also not attract a fee.

UPDATE #2: AFSA has issued a notice advising that the planned implementation of the fee reductions will need to be delayed in order to give certain stakeholder groups longer to prepare for the fee reduction.  I don't pretend to understand why it would need to take more than 2 months to prepare for a small fee reduction but, nevertheless, there will be a delay.  No fresh implementation date has been given at this point but I will update again when this is announced.


UPDATE #3: We've now had confirmation that the new fees will be implemented on 1st August 2018 following approval from the Attorney-General.

Accidental Discharges from the PPSR

Even with the best will in the world, every now and again a mistake will get made, and, in addition to the plethora of opportunities for making mistakes in lodging a registration on the PPSR, it is also quite easy to mistakenly discharge one of your registrations.  Unfortunately, unlike the program I’m using to write this post, the PPSR doesn’t have a convenient ‘undo’ button and although the PPSR does allow for such errors to be corrected, the word ‘convenient’ really does not apply.

The PPSR’s primary concern in such matters is not with assigning blame or getting you to eat humble pie over making your mistake in the first place, but to ensure that no-one could be misled should they reinstate the registration that had been discharged in error.

This means that your very first action upon realising that the registration shouldn’t have been discharged should be to lodge a replacement registration.  

The longer your registration is ‘missing’ the more opportunity there is for a third party to be potentially misled into thinking there was less security in place than there would have been had your registration not been discharged in the first place.

Unfortunately, the Corporations Act and the PPSA’s own PMSI designation requirements mean that, in some cases, a replacement registration won’t suffice on its own – the original registration needs to be reinstated.

In order to convince the PPSR to restore your discharged registration you will need to obtain a “Request to remove, restore or correct data” form from the PPSR.  They haven’t made this the easiest of forms to find but, at time of writing, it was available from a link at the bottom of the page here.  

For restoring a registration, there are essentially only three sections of the form that need to be completed:

• Firstly, you need to identify yourself (applicant details) in the same manner as you were identified when you first set up your Secured Party Group.

• Secondly, you need to enter the unique number of the registration to be restored and ‘tick the box’ making it clear that you want the registration to be restored rather than removed or corrected.

• Thirdly, after skipping a couple of sections relating to having a registration removed, you need to enter some free-form text to explain the circumstances surrounding the mistaken discharge.  Remember, the PPSR is not interested in assigning blame and it is usually sufficient just to enter something to the effect that removal of the registration was simply down to human error.

After that, the form just needs to be signed and submitted to forms@ppsr.gov.au.

Once the PPSR has had the opportunity to consider the form you’ve submitted, they will look to ensure that no-one is likely to be significantly misled by restoring the registration in question.

To this end they will check their search records to see if anyone had conducted a search during the period the registration was ‘missing’ and not replaced by you with another.  If there were no searches and your replacement registration was submitted sufficiently promptly, all will be good, otherwise you may need to write to the potentially misled parties to clarify the position.

You may also be asked to obtain the Grantor’s approval to restore the registration.

I’ve not had the opportunity to test an instance where the Grantor in question has refused to confirm that they have no objection to the restoration of the registration but would assume that confirmation that the circumstances that led to the original registration were still in place should be sufficient.

That should then be it!

The original registration should be restored to the register in a manner virtually indistinguishable (as far as legislative requirements are concerned) from it ever having been removed in the first place.

The PPSR has its own guidance notes on the process here for those who want to make doubly sure.

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.

Forthcoming PPSR Fee Changes

Just to give you the heads up on a forthcoming change to the PPSR’s registration fees.

The scheduled change is still subject to sign off by the Government but, given that the formal Cost Recovery Impact Statement (CRIS) produced by AFSA has been made publicly available, I’d suggest that sign off will be little more than a rubber stamping of the CRIS proposals.

From 1/07/2015 the following fee changes are proposed:

Activity	Proposed Fee	Current Fee
Registration up to 7 years	$6.80	$8.00
Registration 7 to 25 years	$34.00	$40.00
Registration – Indefinite	$119.00	$140.00
Minor Amendment	$3.40	$4.00
Search	$3.40	$4.00
Discharge	$0.00	$0.00

For major amendments the fee will continue to reflect the equivalent new registration charge for the duration of the registration.

Why the proposed reduction?

So far, the fees charged by the PPSR have included a component to finance a repayment of the Government's start up investment in the Register.  This repayment is scheduled to be completed by 30th June 2015 thus charging beyond that date may be reduced proportionately - this amounts to a 15% reduction across the board.

As I have previously written on the importance of timely registration, it would be foolish to consider waiting until the new charges are introduced before lodging registrations!

Amendment Demands - Section 178

In an earlier article, I discussed the importance of Section 151 of the PPSA and the requirement that there be a reasonable belief that the security interest being registered on the PPSR either exists or is likely to exist.  Click here for that article. 

So while that article addressed a supplier’s right to lodge a registration, this article will consider the buyer’s rights when it comes to demanding that it be removed.

Section 178 of the PPSA is the most immediately relevant here and sets out two key criteria for a buyer to demand that a registration lodged against them be removed:

(a)          The obligation owed by a debtor to the secured party is not secured by collateral described in the registration; or

          (b)          The particular collateral in which the person has an interest does not secure any obligation owed by a debtor to the secured party.

These criteria are very similar to each other and, in exploring a variety of scenarios there is certainly some cross-over between the two.

Essentially, a buyer/debtor may demand that a registration be discharged if there is no collateral as described in the supplier’s registration or if there are no monies owed by them to the supplier that are secured by the described collateral.

Scenarios

Probably, the most common situation where such criteria would apply is where a supplier has supplied goods subject to a retention of title clause and was subsequently paid in full.  The supplier has either simply overlooked their obligation to remove their PPSA registration or legitimately believed there was a likelihood of repeat business in the near future.  While a supplier may have the right to lodge/maintain a registration in the reasonable expectation that trading might take place, a buyer has a superior right to demand the removal of such a registration.

Fortunately, a little less common, s178 criteria could also apply where a supplier has incorrectly described their collateral in their PPSA registration as constituting an item of inventory whereas the goods in question are clearly non-inventory items.  In such a scenario, even though there may be monies owed by the buyer to the supplier, it is not technically secured by the collateral as per the registration’s description.

We could also have a situation where the registration has been lodged correctly and there is money owed by the buyer to the supplier in respect of collateral delivered by the supplier but the collateral has been on-sold or otherwise ‘used up’ – there is therefore no collateral against which the supplier’s security interest can ‘bite’.  What about the supplier’s claim to proceeds?  Well a pre-condition for a proceeds claim is that the proceeds be directly or indirectly attributable to the sale of the supplier’s collateral and washing around in a busy bank account will tend to disguise any attribution quite effectively.  We may also have a supplier selling something like bleach or disinfectant that has been used up by the buyer generating no tangible proceeds.

So if there are no monies outstanding on the account or there is no collateral against which a supplier’s security interest can attach then the buyer is well within their rights to request that the supplier’s registration be discharged.

So how should the buyer go about getting the registration discharged?

In an ideal world the buyer would phone or email their supplier, gently point out that the registration against them appears to be serving no purpose and politely ask that it be removed at the supplier’s earliest convenience.  Unfortunately, what seems to be a lot more common are  strident demands, indignant protestations, and veiled threats of legal action and fines.

Under section 178 the buyer/grantor should address an amendment demand to the secured party’s address for service (found on their registration) outlining their reasons for the registration to be discharged or otherwise amended.

While section 178 provides no timescale for the discharge/amendment to take place, section 179 allows for escalation to the PPSR Registrar if the secured party has not responded appropriately within 5 business days.

Once the Registrar becomes involved they will issue the secured party with an amendment notice.  That amendment notice will reiterate the amendment demanded and invite a written response by the end of a further 5 business days.

Should the Registrar not receive any response from the secured party during this time-frame they will either amend or discharge the registration in line with the grantor’s amendment demand.

Where the secured party does respond in good time with an argument against discharging or amending the registration, the Registrar will make their decision based on the information provided by the secured party and ‘any other relevant information’.

Reference to the PPSR Registrar is, however, not the grantor’s only recourse should the secured party fail to respond satisfactorily to their initial amendment demand.  The grantor may choose, instead, to take the matter to court.

The PPSA is understandably silent on timescales once the matter has entered the court system but, as with similar legal processes, both grantor and secured party will have the opportunity to argue their positions before the court and should a decision be rendered in favour of the grantor then it will take the form of an instruction to the PPSR Registrar to effect the requested amendment/discharge.

So what about the threats of fines?

That part of the PPSA that concerns itself with Amendment Demands (part 5.6) is quite silent on the matter of penalties although there may be some application of section 151 that can be brought into play where the grantor suggests that there was no justification for the original registration in the first place.  While I’m not aware of any penalties having been applied for frivolous or unjustified registrations, section 151 certainly provides for civil penalties of up to 250 penalty points (equivalent to $42,500 at time of writing).

So far I’ve seen a lot more bluff & bluster and overly aggressive demands than I have civil and politely composed requests – possibly because the polite requests get acted upon straightaway whereas the aggressive ones tend to get referred to people like me for their advice – but the rules and timescales for action are clearly laid out and are unaffected by the tone chosen by the grantor.

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.

PPSR End of Year Statistics

The Insolvency and Trustee Service Australia (ITSA) has recently released their statistics for activity on the PPSR for the quarter ending 30th June 2013.

Probably not surprisingly, out of over 1.5 million searches conducted (the busiest quarter of the 2012/13 year), the vast majority (61.4%) were searches of motor vehicle serial numbers with the balance pretty much taken up by searches for registrations against organisations (32.2%). 

543,620 registrations were lodged on the Register during the quarter with an overwhelming majority (87.8%) being non-transitional registrations.

Interestingly, at 354,937, the number of discharges was equivalent to almost two thirds of the number of new registrations lodged giving 188,683 in net new registrations.  However, with the total number of registrations as at the end of June (7,366,053) showing only a 111,721 increase over the equivalent figure reported for the end of the previous quarter, this leaves us with a discrepancy of just under 77,000.

ITSA provides no explanation for the loss of 77,000 registrations during the quarter.  Conceivably they have all expired naturally (although that does seem a particularly high figure this early in the life of the PPSR given that the register virtually encourages registrations for up to at least 7 years) or perhaps someone will find that they have slipped down the back of a cupboard somewhere.

Motor vehicles are the most common collateral class listed on registrations on the PPSR. As at 30 June 2013, there were 3,998,373 current registrations on the PPSR of this class.  ALLPAPs (with and without exceptions) came in second with just under half that number and then ‘Other Goods’ registrations at 1.23 million.

The full set of statistics released by ITSA can be found at the following link:

https://www.itsa.gov.au/about-itsa/ppsr/ppsr-statistics/ppsr-quarterly-statistics/june-2013-ppsr-quarterly-statistics/june-2013-ppsr-quarterly-statistics-report

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.