You can lose your equipment by failing to register your interests on the Personal Property Securities Register (PPSR).
Failing to consider the impact of the Personal Property Securities Act 2009 (PPSA) is still having dramatic adverse implications for many construction industry participants.
In particular, where other parties with whom you deal are wound up (a liquidator is appointed) there are specific provisions of the PPSA which allow a liquidator to takeyour things, even if you own them. The liquidator can then potentially sell them for the benefit of the company in liquidation.
A LIQUIDATOR CAN TAKE EQUIPMENT THAT YOU PAID FOR
It sounds ridiculous, right? Surely some liquidator can’t come and take equipment that you paid for?
But this is something that is happening time and time again, and it’s happening because businesses like yours don’t know about it, and aren't taking steps to protect themselves.
YOU MUST REGISTER YOUR INTEREST ON THE PPS REGISTER
If you hold a security interest in relation to personal property and you have not “perfected” that interest under the provisions of the PPSA (normally by registering it on the PPSR) then you have an “unperfected” security interest. When a company (let’s say it’s your customer) goes into liquidation, if it still has possession of the personal property, there is a real chance that your security interest will be extinguished if it is unperfected.
That sounds fairly technical, so let’s look at a couple of practical examples where this can come up.
EXAMPLE ONE – CONSTRUCTION SITES
You are involved on a construction site, as part of which you allow a head contractor to use your equipment. That might include forklifts, trucks and caterpillars. You render invoices and you get paid for the rental of those goods by the head contractor. Your arrangement could, in the right (or wrong) circumstances be what is called a “PPS Lease”. A PPS Lease is a type of security and needs to be registered to gain protection of the PPSA.
If the head contractor goes into liquidation, and you have not registered your interest on the PPSR, there is a real risk that your rights in relation to those goods will be extinguished.
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EXAMPLE TWO – THE HIRE COMPANY
Another example is where you are hire company. If you hire out goods, machinery or equipment to other parties and you are not registering your interest on the PPS Register, then you run a real risk that if your customer goes into liquidation, you will lose your rights to the goods even though they belong to you.
HOW CAN YOU PROTECT YOUR PLANT AND EQUIPMENT?
What are the lessons that you need to take away from these examples?
First - the PPSA extends well beyond traditional bank securities, and into a significantly wider consideration of what might be counted as a “security interest”. This can include leases of goods in some circumstances, items connected with a real property lease, and even equipment that you might allow someone else to use in exchange for compensation. Don’t assume the PPSA does not apply to you.
The fact that you own the equipment is not relevant. If, as a result of your arrangements with your customer or your contractor, you have what the PPSA defines as a “security interest” then you need to be thinking beyond ownership.
You need to be informed about your business and how the PPSA might apply. At the very least take informed risks, rather than simply carrying on under the assumption that the PPSA won’t apply to you.
IS THE PPSA HERE TO STAY?
The PPSA is real and it is here to stay. The practical effect that a liquidator of your customer could take your goods even though you own them might seem outlandish and unreasonable, but that does not change the way in which the Act operates. Nor will it change the way in which a liquidator will approach the discharge of their duties.
The recent Whittaker Report made various recommendations to improve the overall function of the PPSA, including simplifying the registration process and narrowing the scope of a “PPS Lease” by excluding bailments. Despite acknowledging that there is much room for improvement, the Report confirmed that the PPSA will remain as the basis for personal property securities law in Australia.
Be prepared, and be protected.
WHAT DO YOU DO IF THE LIQUIDATOR TAKES THE CONSTRUCTION EQUIPMENT YOU OWN AND IT IS NOT ON THE PPSR?
If you find yourself battling against competing claims over your equipment, it is important to act quickly to reduce the risk of losing what you own.
Our team can assist you in protecting your equipment and is available to advise you on the following legal and commercial issues:
- whether the hire or bailment arrangement of your equipment constituted a “PPS lease”;
- whether any exceptions under the PPSA may apply to defeat the competing claim/s;
- the commercial feasibility of the liquidator enforcing an interest over your equipment;
- the best strategy to defend claims by the liquidator (or the liquidator’s creditor) for your equipment.