Covering your assets

by Adam Smith18 Sep 2013

Hall & Wilcox commercial litigation specialist and PPSA expert, Katherine Payne, demystifies the complex legislation and identifies key points for brokers.

The Personal Property Securities Act (2009) is a national legislation that came into effect on 30 January 2013. Broadly, it impacts situations where one person or entity takes rights or a security in non-land assets which belong to, or are in the possession of, another.
 
Hall & Wilcox lawyer and PPSA expert, Katherine Payne, says it’s crucial for brokers to understand the sometimes complex legislation, for a number of reasons.
 
“When approached for non-land asset finance, a financier will now search the PPS Register to determine which other entities claim rights in the borrower,” Payne explains. “For example, will the financier have a first-ranking charge or a second-ranking charge? Is the inventory intended to be financed already the subject of a retention of title arrangement with the supplier? These are important questions for financiers. It is therefore important for borrowers and brokers to be comfortable in answering these questions before they apply for finance.”
 
The PPSA also imposes additional obligations on particular types of financing. “For example, a debtor discounting facility will now require particular notices to be sent by the discounter, which often impact the timing of when funds will be advanced. It’s important that brokers be aware of these implications for their clients.”
 
Furthermore, lenders are now frequently questioning whether the borrower has PPS protocols in place to protect its business with respect to its customers. “For example, if a financier takes rights in assets held by an equipment-hire company, but that equipment-hire company does not protect its own assets as against the customers, the value of the financier’s security may be jeopardised. Some financiers are now considering the existence and content of PPS protocols in assessing which products to offer a borrower.”
 
The final reason brokers need to be aware of the legislation, says Payne, is that it’s the borrower’s responsibility to ensure that interests incorrectly recorded against them are removed from the PPS Register. “In some instances, this can take time. Companies and people should seek professional advice swiftly if they consider that interests have been incorrectly recorded against them. This can impact their ability to obtain finance.”
 
The PPSA applies to most businesses, as well as individuals and trusts. Payne says it’s important that affected businesses and people seek advice as to the impact of the PPSA on their business. Brokers, she says, are ‘well placed’ to encourage clients to do so.
 
But what exactly is the PPS Register – and how do brokers access it? 
 
“The PPSA has created a national register, called the Personal Property Securities Register (PPS Register), on which many of these arrangements must be registered. In doing so, it provides a public noticeboard of rights claimed by one party, called the ‘secured party’ (eg a lender), in assets held by another, called the ‘grantor’ (eg the borrower).” The register can be accessed online at: www.ppsr.gov.au
 
It’s vital that companies and individuals register their assets on the register, says Payne, because if they don’t, those rights may be lost. “It is important to note,” says Payne, “that the PPSA applies only to non-land assets. Land assets should be dealt with in the usual course.”
 
When registering a security arrangement on the PPS Register, she says it’s necessary to understand that rights are registered to one party (the ‘secured party’) over another party (the ‘grantor’) in respect to assets held by the borrower (the ‘collateral’).
 
“Registering can be deceptively simple. It is easy to inadvertently make a mistake which will invalidate the entire registration. While it is important for brokers to be aware of the PPSA and its ramifications, we recommend that the borrower and broker seek advice before undertaking specific registrations.”
 
Finally, says Payne, it’s recommended that businesses search the register periodically to check which interests have been registered against them.
 
“This will assist companies in understanding the rights claimed by their creditors. We frequently see rights being claimed against a party wrongly. It is preferable to be aware of such instances before questions are raised by the financier.”
 
Katherine Payne is a commercial litigation specialist with a focus on insolvency, the Personal Property Securities Act (PPSA) and its practical implications and general commercial litigation. She has had numerous articles published, provided expert commentary and presented to clients and associations from a range of sectors on the impact of PPSA to their business.