Using our top 10 tips and traps when dealing with the PPSA, you can better manage business interruptions caused by COVID-19.
The Personal Property Securities Act (PPS) and its Register (the Register) have many benefits.
This Alert looks at 10 tips and traps when dealing with the PPSA and the Register during business interruption such as we are currently experiencing.
Call us to discuss how we can help you create suitable procedures, documents and registrations to protect your rights.
What is the PPS and the Register?
In 2012, the PPS replaced many state, territory and Commonwealth laws and registers with this one national system and register. The Register is an online database that shows you whether someone is claiming an interest in goods or assets.
Not only are you able to search the Register when purchasing goods or assets to ensure these are free from existing financed debt, proper registration can help protect your own security interests.
Who should consider the PPS and Register?
Anybody who is:
- Buying goods or acquiring personal property
- Selling on retention of title terms or consignment
- Hiring, renting or leasing out goods
- A director who has made a loan to the company
- A family member or related entity who has made a loan to the family business.
Top 10 tips and traps
1. Keep Calm – All data is stored on the Register for free
Anything you currently have registered on the Register (whether directly, or via third party providers) can still be accessed by you directly from the Register. There is no need to back up data.
We recommend running a search of the Register to check that your registrations are up to date.
2. Reduce substantial expenses – use the Register Directly
The various government fees for using the Register directly are substantially less than what third party providers charge. Using the Register directly can save substantial expenses.
Example: if you did 100 x 7 year registrations and 100 x PPS searches over a 6 month period (total government fee of $800) you would likely save over $3800.
3. The Register – Anytime Anywhere 24/7/365 – laptop, desktop or mobile
The Register and associated registers are generally able to be accessed 24/7/365 by any device, except for a few hours each week for maintenance. Staff (who might have new day time commitments due to school aged children or other dependents) can therefore still do PPS related work from anywhere, and at times different to their usual working hours. This is possible even if your business cannot provide remote access, because searches and registrations are obtained from and stored on the Register.
We recommend you make sure all staff members who require access to the Register have login details whether working in the office or remotely. You should also check that the currency of people with access to your Register and remove anybody who may no longer work with you.
4. Reduce staff time and error rates – electronic templates for registrations (free)
You can create on the Register (for no government fee) a “template” of the registrations which you commonly make. This way, instead of having to enter 23 different fields of data, there are only 2 fields of data to enter. This saves substantial staff time and reduces error rates. It also means that the time to train new staff is substantially reduced.
We recommend you take the time to set up the templates and, if already set up, review to ensure these are up to date.
5. Download PPS reports 24/7/365 and create auto notifications (free)
You might want to see what has been registered by you. Instead of relying on your own records, you can download various reports at any time – for free.
Just as important is checking who has registered against you (eg your suppliers) or your customers (eg your competitors). By setting up these free auto notifications, you will receive an email for most if not all of these registrations.
We recommend you contact us to discuss how you can set up auto notifications.
6. Asset protection, tax minimisation and related party arrangements – PPS compliance
Often (for asset protection, tax minimisation or other purposes), a director or related entity might loan money to a business. On other occasions, they might provide goods, intellectual property or equipment to the business.
The PPS applies to both related and third party transactions.
Failure to properly document and register a related party’s security interest means that you will be an “unsecured creditor”. This means that you will lose rights and priority to others, whether or not the related party or a customer goes into liquidation.
Now, more than ever, it is crucial to have an expert review your related party arrangements and have suitable PPS documents and registrations created.
We recommend you document and register any loans that have been made or are being made once you have talked to your accountant or tax adviser. We are available to help you with the registration or review.
7. Unprofitable contracts – frustration or force majeure events?
The PPS is based on the terms of the contract made between the parties. Often, performance of a contract will become impossible, or be suspended, because of a supervening event due to neither party’s fault. This will depend on the facts and the terms of the contract. Thynne + Macartney is helping a significant number of clients understand the terms and obligations of their contracts in light of COVID19 and its implications.
During substantial business interruption, governments often pass laws which alter the parties’ rights to claim frustration or force majeure (eg such as for leases or mortgages).
If the contract has become unprofitable or unable to be performed (eg Stay at Home directives or flooding), it might have automatically come to an end (ie terminated) for “frustration”. You might wish to claim that frustration has occurred, and so avoid various obligations and liabilities.
If however the contract has suitable express terms, it is said that a “force majeure” event has occurred. This does not end the contract, but suspends certain obligations and liabilities until the event ends. It also normally requires a party to continually report on the event and when it has ended.
A party must expressly claim “force majeure” to be entitled to rights under the contract.
It is therefore essential that you obtain legal advice before deciding what steps you can and should take and how these might affect your PPS rights. Taking the wrong steps can result in you losing substantial rights and/ or being exposed for substantial damages for breach of contract.
It is also prudent that you have your standard contract terms reviewed by a lawyer, to see if they adequately deal with protecting you and your business.
We recommend you review your current contracts in light of COVID-19 and are available to help identify possible instances of frustration or force majeure.
8. PPS rights – courts not required
Not only businesses are affected by various interruption events. Sometimes, the courts are suspended or are not available at all to issue orders to enforce rights.
The PPS creates many rights in addition to the rights stated in a contract. Many of these rights do not require any court orders.
Some rights which do not require courts orders include that you might be entitled to:
- Seize and sell your debtor’s assets;
- Enter your debtor’s or other person’s land to seize cattle or crops;
- Require another creditor to provide a copy of their security agreement and details of the amount of the debt owed to them;
- Remove another person’s PPS registration, and
- Require a third person to pay you instead of the debtor.
9. No “credit risk” or “debtor insurance” – reduce risk exposure by using PPS
Like many businesses, you might have taken out credit risk insurance (sometimes called debtor insurance). This is intended to insure you for part of the debt owed to you by your customers’ debts, and to protect you from unfair preference claims by an insolvent customer’s liquidator.
In times of substantial financial crisis however, your insurance company might either cancel coverage or increase premiums to beyond what is viable. This can leave your business exposed to substantial risk. Check with your insurer as to what actions they intend to take.
Because the PPS makes a creditor a “secured creditor”, it can substantially reduce your risk exposure if used suitably, and do so at less than the cost of your insurance.
10. Suitably collaborate with other stakeholders to get a better outcome for all
All of these steps either require or may result in interaction with other stakeholders. These stakeholders might have rights which might be in direct conflict with your strict legal rights, but have a shared commercial goal.
Example: You might have the strict legal right under the PPS to seize some or all of your customer’s assets. However, this might result in your customer not being able to perform a contract, and so reduce any future income available to pay out you and other creditors.
Before undertaking any action, we recommend you identify other stakeholders and speak with them when appropriate about possible actions and outcomes.
If you would like further assistance in registering security interests on the Register, or to discuss how the PPS and its Register might benefit you through the turbulent times individuals, businesses and communities are facing, we are available to help and discuss the options available to you.
We also have a number of other publications available to help individuals and businesses effectively register their interests:
- Why your SME should utilise PPS registrations to improve sales and reduce debt write-offs
- Easy As PPS Registrations
The Australian Government’s Personal Property Securities Register website has a number of helpful tools and guides and is available here.
Author: Peter Mills (former Special Counsel)