Searching the Personal Property Securities Register (the ‘PPSR’) is essential when entering into commercial arrangements to ensure that security interests held against any of the assets of a contracting party are revealed in an open and transparent way.
A search of the PPSR will show any interested party what security interests are held against a company, trust or individual and the priority of any competing interests including whether any assets of a party are subject to retention of title claims by a third party or a separate asset holding entity. Such interests will be shown on the register as a ‘Purchase Money Security Interest’ or ‘PMSI’. PMSIs are given what is phrased ‘super priority’ and any secured parties holding such interests are entitled to repossess their goods and trace and recover any proceeds if those goods have been mixed or ‘commingled’ with other materials to make a final product.
Ramsden Lawyers recommends that the PPSR be searched before undertaking major transactions or entering into commercial arrangements to ensure that our clients have a more accurate picture of a contracting party’s asset holdings, with a view towards revealing what assets are encumbered or subject to what is termed a ‘PPS Lease’, being the typical arrangement where an asset holding entity leases its equipment or other assets to a trading entity with that interest registered on the PPSR as a PSMI. A search of the PPSR will reveal if any of the assets of a contracting party are subject to a PPS Lease and are as a result, not available to creditors in the event of the contracting party becoming insolvent and entering liquidation.
This is especially important in our view when entering into lending transactions as a borrower may appear to be financially stable and asset rich when in reality those assets which a lender may be relying upon in making the decision to make a loan may be owned by a third party, an asset holding entity or be highly encumbered. When entering into lending transactions, we advise that all loans be secured and registered on the PPSR against all present and future acquired property (what was previously known as a ‘fixed and floating charge’) of the borrower and any of its related holding companies to ensure that our clients are sufficiently protected and risk is mitigated to the greatest possible degree.
Where a borrower is a related party, such as in the case of a director’s loan, we recommend that these arrangements be secured in the same manner to ensure that the repayment of that loan is given priority in the event of insolvency.
Likewise, it is equally important to ensure that if you are entering into supply arrangements that you secure your interests in the goods being supplied on the PPSR, as a failure to do so will mean that you may lose those goods to a liquidator if the contracting party becomes insolvent and liquidators are appointed to manage a creditors voluntary liquidation.
If you would like any further information about the PPSR and securing your commercial interests, please contact our office to make an appointment to discuss how we can assist you in undertaking due diligence on a contracting party or how we can secure your commercial interests on the PPSR to ensure that you are protected in the event of either your or a contracting party’s insolvency.
By Oliver Jones, Associate, Ramsden Lawyers
27 February 2014