PPSR Statistics & the Rise of 'Other Goods'

The Australian Financial Security Authority (AFSA) – perhaps better known as the people that run the PPSR – released, earlier this month, PPSR related statistics for the July-September quarter.

I’ve included a link here.

As at the end of September, there had been a total of 19,265,693 registrations, of which marginally under half were still current.

The largest single collateral class overall was, unsurprisingly, Motor Vehicles, accounting for 49% of all current registrations (although if you take Consumer related transactions out of the picture this drops to 34%).

However, what caught my eye this time around was the extent to which Other Goods registrations have come to dominate over the last 5 years.

5 years ago, All Present & After-Acquired Property registrations (AllPAAPs) accounted for a little over 2 million registrations while Other Goods registrations made up less than a million (944k).

This shouldn’t be too much of a surprise; AllPAAPs are primarily the preserve of banks and financiers who would have been all over the PPSR upon its introduction, ensuring their security interests were properly protected from the outset.  Other Goods registrations, on the other hand, are very much the tool of the trade credit supplier with Retention of Title rights and, as we know, this disparate group is not always the most organised or receptive when it comes to ‘Government Red Tape’.

However, things have changed considerably over the last 5 years with AllPAAP registrations remaining pretty static (even declining slightly) and Other Goods registrations steaming ahead as trade credit suppliers get the message that PPSR registration represents one bit of Red Tape they need to adopt if they are to protect their rights over their unpaid goods and give themselves a better chance of fending off liquidators’ preference claim clawbacks.

With over 2.6 million current registrations, Other Goods now represents the largest collateral class for non-consumer registrations.

There is every indication that this trend will continue as trade credit suppliers come to terms with the fact that the PPSR isn’t going anywhere and failing to embrace it will only contribute to them suffering larger losses than they need to.

PPSR & Preference Claims

I hadn’t realised until recently how long it’s been since I’d posted on the subject of (Unfair) Preference Claims.

However, there have been some developments since that time, including a particularly interesting legal judgement recently, and an update is appropriate.

For a refresh on the basics, you can find my earlier post here.

In this post, I’m going to be looking at:

• The standing of a Retention of Title clause when it comes to determining whether a payment was secured or not; and
• The Corporations Act’s problem with Transitional security interests.

New light was potentially shed on the options for mounting a defence against a liquidators’ preference claim in Justice Edelman’s ruling in Hussain v CSR Building Products Limited regarding the payments made by FPJ Group Pty Ltd.

The ruling runs to some 248 numbered paragraphs and covers many aspects of the standard preference claim defence available to suppliers – running account, good faith and the test for insolvency – but what concerns us here is the Judge’s conclusions regarding the role an unregistered Retention of Title clause played in determining whether the supplier, CSR, received payments in respect of an “unsecured debt”.

Justice Edelman found that there were sufficient references in the Corporations Act to a Retention of Title right being, in substance, a form of security that, while in the circumstances CSR may not satisfy the definition of a ‘secured creditor’, their Retention of Title right was sufficient to render the debt they were owed ‘not unsecured’.

It will be interesting to see to what extent this view is allowed to stand unchallenged because it certainly seems to run counter to a line liquidators have been taking with the, apparent, support of section 51 of the Corporations Act.

Section 51 is one of the relatively recent additions to the Corporations Act brought in to harmonise with the introduction of the PPSA. It’s a very short section and states:

“ In this Act:"PPSA security interest " (short for Personal Property Securities Act security interest) means a security interest within the meaning of the Personal Property Securities Act 2009 and to which that Act applies, other than a transitional security interest within the meaning of that Act.”

Effectively, the Corporations Act is acknowledging that the holder of a security interest that is recognised as such under the PPSA will be deemed to be a secured creditor.  But it also goes on to say ‘except for transitional security interests’.

While this aspect of the Corporations Act does not impact upon a creditor’s status when pursuing outstandings upon the appointment of a liquidator, it has been used to impact upon a supplier’s rights to retain alleged preferential payments.

When a supplier seeks to defend themselves against a liquidator’s preference claim by asserting they were a secured creditor, the liquidator will, invariably, reject the defence on the basis that their PPSR registration was lodged as ‘Transitional’.

This has given rise to a widespread call from intermediaries, brokers, and other assorted advisors, that suppliers should lodge fresh non-transitional registrations to secure their interests.

While this may not hurt (and may improve a supplier’s chances of a successful outcome) there is an element of confusing the wrapping for the gift. 

The Corporations Act does not exclude security interests registered as transitional; it excludes security interests that are transitional.  Registering an interest as non-transitional does not suddenly make that underlying interest non-transitional just as attempting to perfect a non-transitional security interest with a transitional registration will not meet with success.

So, while transitional registrations are to liquidators as red rags are to bulls, putting non-transitional registrations in place will certainly be a good idea, for liquidators who take the trouble to look closely, they may not be sufficient.

However, for those liquidators, there is always the ruling of Justice Edelman to fall back on!