PPSR Statistics and Transitional Registrations

AFSA (the people that operate the PPSR) released their statistics for the quarter ended 31 March 2017 this morning. 

The report, which is quite brief, only comprising seven, easy to read, tables, can be found here.

There’s nothing terribly exciting contained in the report - registrations against motor vehicles account for a little under half of all registrations and a little over half of all searches, and intangible property still appears to be substantially better protected as collateral than agricultural property.

However, what puzzled me was the fact that, during the January – March quarter, 18,686 of the half a million or so registrations lodged were designated as Transitional.

While 18,686 is not very much in percentage terms (3.7% to be precise) it still represents an awful lot of new registrations asserting that the security interest they are intended to protect arose out of an agreement put in place over 5 years earlier and remaining unchanged since that time.

When the PPSR first started, Transitional registrations were free to lodge and, regardless of the date of the registration, the perfection a Transitional registration provided was, effectively, backdated to before the PPSR’s commencement.  However, when the Transitional arrangements ended in February 2014, although still free, the perfection granted by a Transitional registration was no longer backdated and, like non-transitional registrations, only applied from the registration date.  From July 2015, Transitional registrations ceased to be free and began attracting the same charges as their non-transitional equivalents.

The only real difference now between a Transitional registration and a non-transitional registration is that section 337A of the Act states that if you identify your registration as relating to a Transitional security agreement it will be ineffective for any collateral that is not covered by a Transitional agreement. There is, of course, also that annoying section 51 of the Corporations Act that states that a Transitional security interest doesn't count as a PPSA Security Interest!

In other words, if you designate your registration as Transitional and it turns out that your security interest isn’t, your registration will be, effectively, worthless.

Importantly, there is no equivalent clause in the Act stating that non-transitional registrations would be ineffective if it turns out they concern Transitional security agreements!

Thus, mistakenly identifying your registration as non-transitional isn’t half as dangerous in its implications as mistakenly identifying it as Transitional!

While I can certainly understand lodging a Transitional registration during the first couple of years of the PPSR, and can understand the attraction of not being charged for lodging a Transitional registration up to July 2015, I’m not sure I understand the reasoning behind persisting with lodging Transitional registrations today.

18,686 represents the second highest number of Transitional registrations lodged during a quarter since the PPSA’s Transitional Arrangements came to an end and brings the total number of Transitional registrations lodged since that time to over 175,000 – of which almost 100,000 were lodged since the price differential was removed.

I can’t help worrying that there are a significant number of businesses that started following a template for registrations 5 years ago and haven’t made any moves to update it since.

My advice remains:

• If the agreement signed between you and your customer is dated after 30/01/2012 then you should register as non-transitional.
• If your applicable Terms and Conditions have been amended since 30/01/2012 you should register as non-transitional.
• If you can’t find a copy of your agreement with your customer then you should look to get a fresh one signed and register as non-transitional.
• If your signed agreement doesn't incorporate your security agreement and your retention of title clause only appears on your invoice then you should register as non-transitional.
• If you're in any doubt register as non-transitional.

Links to earlier articles relating to the Transitional vs Non-Transitional ‘debate’ can be found here.

Top 5 Registration Errors

I came across an article in ‘Lawyers Weekly’ a couple of days ago, suggesting that more than 80% of businesses listing on the PPSR have made errors that may limit or invalidate their rights.

While this doesn’t really give much idea of the scale of the problem – it certainly isn’t intended to mean that 80% of all registrations are somehow wrong – it clearly reinforces the idea that the PPSR is far more demanding than it should be for a public register.

So, what are the most common errors that businesses are making?

Based, purely on my own observations, the following are the top 5 key problem areas.

Identifying the Grantor – Businesses seem much more comfortable using ABNs than ACNs and attempt to stick them in wherever possible. To the extent that they will treat an ABN and ARBN as one and the same, shoehorning a version of the ABN into a field designed to identify (primarily) overseas companies registered in Australia.

PTY LTD and PTY companies will have an ACN and failing to use that ACN when lodging a registration against them will have serious consequences.

When it comes to the PPSR, there is no such thing as ‘close enough is good enough’.  Grantors must be identified strictly in accordance with the PPSA’s rules.  When a third party wants to find out what security interests exist against a given company, they are guided by the PPSR to search by ACN.  If a search under that company’s ACN does not reveal your security interest it will almost certainly be considered invalid.

Forgetting about the Trust – Unfortunately for those who like simple rules such as “always use a company’s ACN to lodge a registration”, there is an exception where Trusts are involved. 

Where a company is acting as trustee of a trust (and that trust holds an ABN) the registration should be lodged against the ABN of the Trust.  Given that it is possible for a company to purchase both in its own right and in its capacity as a trustee, I tend to advocate lodging a registration against both.

“I don’t understand the question so I’ll leave it blank” – I’m positive that lack of customer reference numbers (or similar) included in registrations has a lot to do with the fact that the PPSR’s chosen term for this is ‘Giving of Notice Identifier’.  It is hard to think of a more awkward, less user-friendly term.  However, while failing to make an entry in GONI won’t cause too much of a problem, leaving the ‘Purchase Money Security Interest’ option blank for the same reason will be a lot more problematic!

Anyone selling subject to a Retention of Title clause, under a consignment stock arrangement, or leasing goods will lose virtually all their much deserved priority should they fail to tick this box.  

Don’t understand the definition of a PMSI?  No worries just tick the box anyway when you’ve got a Retention of Title clause in your terms.

Not taking stock – Even when the terms should be relatively familiar, such as in the case of “Is the collateral Inventory?” we see frequent problems. When asking why a supplier didn’t designate their interest as being over inventory, answers have included, “but it wasn’t inventory, we had to cut it to shape for them”, “we had to order it in specially”, or simply, “I didn’t think it was important”.

Firstly, everything in a PPSR registration is important.  Secondly, if you are selling goods that your buyer is going to be on-selling, using as part of their own end-product for on-sale, or using up in a production process or similar, it will be inventory. Failure to identify it as such could easily mislead a debtor financier or factor into thinking they can take clear title to accounts receivables, for example.  And, under the PPSA, if an error in registration can mislead it will, more than likely, be deemed ineffective.

Processing Proceeds – ROT suppliers are leaving the ‘Are proceeds to be claimed?’ question blank far too frequently.  While they may know what proceeds are, what they may not be aware of is their entitlement to claim proceeds for the on-sale of the goods they have supplied.

As a general rule, if you tick the PMSI box, you should also tick the Proceeds box.

While there are plenty of other opportunities for mistakes to be made (claiming a control of assets you don’t have, poorly thought out collateral descriptions etc), the above certainly represent the conjunction of the most common and most impactful.

Of course, the biggest error would be not to lodge a registration at all!