5 Things Everyone in the Building Industry Should Know about the Property Securities Register

– Builder’s Choice Magazine

 The Personal Property Securities Register (PPSR) is a national online database  which electronically manages and stores information regarding security interests over any personal property apart from real estate. On the register, anentity granting a security interest is the ‘grantor’, the entity getting the security interest is the ‘secured party’ and secured personal property is known as ‘collateral’.

5 Things Everyone in the Building Industry Should Know about the Personal Property Securities Register

By:Craig Hollett (Director, Bowen Buchbinder Vilensky) and Darryl Koh (Solicitor, Bowen Buchbinder Vilensky)

Introduction

The Personal Property Securities Register (PPSR) is a national online database  which electronically manages and stores information regarding security interests over any personal property apart from real estate. On the register, anentity granting a security interest is the ‘grantor’, the entity getting the security interest is the ‘secured party’ and secured personal property is known as ‘collateral’.

1. What is a security interest?

This is an interest in personal property provided for by an arrangement which secures payment or performance of an obligation. Alwaysconsider if a security interest should be registered on the PPSR. It may not be worthwhile if the personal property is below a certain value, or cannot be easily identified, for example, if it does not contain a serial number.

2.What are typical registrable security interests?

These can arise from a variety of arrangements: contained in commercial agreements such as in building or construction contracts e.g.:

(a) a principal  entitled to take possession of a contractor’s equipment to complete any outstanding work and sell the equipment to recover any amounts owing to the principal by the contractor;

(b) the supply of equipment whereby title is retained until the equipment is paid up. This is called a ‘purchase money security interest’ (or PMSI);

(c) where there is a ‘PPS lease’ (also a form of PMSI) of equipment –  an arrangement whereby you have possession of certain equipment for a defined period of time but do not actually own the equipment, e.g. a contractor leasing equipment from a supplier.  For a PPS lease, the lease period must be more than one year or indefinite. If the equipment is an aircraft, motor vehicle or a watercraft, the time period is 90 days.

3. Why is it important to register security interests?

The consequences of not protecting one’s security interests can be dire. For instance, if you lease equipment to a contractor but fail to register your security interest, and the contractor grants its bank an interest over all its assets and later becomes insolvent, then the bank may be entitled to claim those assets without having to consider your interests over those assets.Where there are two or more security interests registered over the same collateral, priority is determined by the timing of the registration, subject to the special priorities for PMSIs.

4. The special priorities for PMSIs

If registered in time, a PMSI has super-priority and leapfrogs ahead of any other existing registrations on the same collateral e.g. if a contractor has already granted a security interest to a bank over all of its existing and future assets, the lessor will still maintain priority over those assets that are being leased out to the contractor even though the lessor may have registered its security interests at a later time than the bank.

5. By when must a security interest be registered?

Generally, where the grantor is a company, the security interest has to be registered within 20 business days after the agreement giving rise to the security interest came into force.

The table below summarises when PMSIs should be registered otherwise a secured party will not benefit from the PMSI super-priority(although the default priority rules will still apply).The term ‘inventory’ refers to personal property used in the ordinary course of business eg. stock stored for the purposes of future sale or supply. ‘Goods’ refers to any tangible personal property.

 Conclusion

When buying equipment, it is prudent to first do a PPSR search to check if there are any secured interests over it. When leasing out equipment to someone else, protect your interests in that equipment by way of PPSR registration bearing in mind the time limits for registration.

As always, if you are in doubt with regards to any aspects of the PPSRor the protection of your interests, you should seek competent legal advice as soon as possible.