If you own or finance equipment and on hire the equipment you need to read this article.
A lot of people haven’t heard about the Personal Properties Securities Act 2009 (“PPS”) (the name is confusing as it also applies to businesses and their assets) and the consequences of not registering their commercial arrangement on the Personal Properties Securities Register (“PPSR”)
What is the PPS?
The PPS is a Commonwealth Act which commenced on 30 January 2012 and introduced a national regime which replaced many existing schemes (including over 195 Acts and Regulations and 70 registers) which dealt with the registration of security interests over property in Australia. Some State registers that were replaced you may have been familiar with such Register of Encumbered Vehicles (REV’s) and Victorian Securities Register where financial interests over registered vehicles were held.
What is the PPSR?
The PPSR is the register where details of security interests in property can be registered and searched.
Example of how you can lose your Asset!
The PPS goes one step further than previous legislation in that if you hire your asset to a third party on a handshake (or formal arrangement) and you are not correctly registered on the PPSR if a Receiver/Liquidator is appointed to the third party they can take possession of the asset, sell it and keep the proceeds. You think I am kidding right?
A recent court case last month proves the above as reported by Andrew McLellan of EDX Australia a specialist in the area of PPS. The case Spiers Earthworks Pty Ltd – WA Supreme Court judgment – 16 April 2014
“The Receiver obtained a Court Order not only confirming that he was entitled to retain and sell the assets in his possession, but that Spiers Earthworks had to return all the assets that they had repossessed prior to the Receiver being appointed. Collecting your assets prior to the appointment of a Receiver will not save you. Only correct PPSR registration can achieve this.
The agreement commenced in 2010. The company that hired the assets had Receivers appointed over it on 24 July 2013. Spiers Earthworks did not bother registering on the PPSR. Considerable legal fees were then spent by Spiers justifying why it didn’t need to register. Spiers explored two new defenses to justify why it did not need to register. The first defence was that the Receiver would be acquiring the assets for nil value which was not on just terms. It also explored the defence of how the PPSR interacts with State laws. Both defences were knocked back by the judge. In simple terms, there is no sensible alternative to correct registration on the PPSR.
Spiers is just one more example where the owner of valuable hire equipment has lost assets to an Insolvency Practitioner. The lesson to be learnt is that you need to register and you need to register correctly. Seeking expert PPSR advice to get the registration performed correctly will be far cheaper than paying solicitors to argue a potentially losing case with an Insolvency Practitioner. In Spiers case, they now have to pay both their legal fees and the legal fees of the Receiver. In addition, they have lost assets with a value of more than $1,400,000. This is in contrast to correctly registering for $16 on the PPSR”.
So what can you do to protect assets?
- Understand the PPS and ensure your interest is correctly registered on the PPSR.
- Seek Advice from your Accountant or Legal Adviser
- Use a company such as EDX Australia www.edxppsr.com.au
This website http://www.ppsr.gov.au provides additional information about the PPSR.
For all you finance requirements make sure you talk to the team at Esdale Sinclair and Associates