Since the commencement of the Personal Property Securities Act 2009 (Cth) (PPSA) on 30 January 2012, there has been a stampede to register security interests on the Personal Property Securities Register (PPS Register).
The new, broad definitions of ‘security interest’ and ‘personal property’, and the format of the PPS Register, have caused a great deal of panic and confusion, and many companies have adopted a ‘when in doubt, register’ approach. This knee-jerk, but nevertheless understandable, reaction has produced many incorrect and consequently, defective registrations.
Things to Remember About PPS Registrations
For each registration, the secured party must have reasonable grounds to believe that the security interest either exists, or will exist in the future. Once the interest is registered, the PPSA imposes a number of obligations on the secured party, such as the requirement to notify certain people, including the grantor, of the registration and to keep the information recorded on the register up-to-date. Depending on the size and business activities of a company, ensuring ongoing compliance with such obligations may be a costly administrative burden.
Importantly, if a security interest is capable of registration, but the registration is incorrect, this may make the registration defective. A defective registration often means that the security interest is not ‘perfected’, and the secured party is at risk of losing its priority position.
Finally, if the secured party creates a registration on the PPS Register but cannot establish a reasonable belief that it is, or will be, the holder of a security interest in the property, a fine of up to $27,500 may be imposed.
Think Before You Register
In most cases, secured parties will need to register their security interests to ensure that those interests are protected under the PPSA. However, parties should think carefully about the costs involved and the time taken to administer registrations on the PPS Register. Those considerations should be weighed up against other factors such as the length of time the property will be in the possession of the customer and the likelihood that the customer will become insolvent within that period, or that it will deal with the property in a manner which is contrary to the security agreement.
Final Words …
Before joining the stampede to register anything and everything, we recommend thinking about whether registration is appropriate and cost-effective in the circumstances. Once it is decided that registration is appropriate, the most important thing is that the registration is on time and accurate.