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Curt Schatz
LEGAL MATTERS
PERSONAL PROPERTY SECURITIES REFRESHER
Personal property securities impact upon the day to
day business and transactions that those in the hotel
industry may be looking to undertake. For this reason,
we thought it timely to go through a quick refresher of
the Personal Property Securities Act (PPSA), and how
it impacts your hotel.
The PPSA takes a “substance over form” approach
to dealing with security interests, and provides a
broad system of registration. In particular, some
arrangements used in commercial transactions
have been deemed to be “security interests” for
the purposes of the PPSA and require registration.
Examples of these include retention of title
arrangements and leases.
This comes as a surprise to many business operators
if they have not very carefully read the terms of trade
that they have signed with their suppliers.
It is important to be aware of what security interests
are registered over your business, otherwise there
may be complications when engaging in certain
transactions. For example, if you are considering
selling surplus assets, refinancing your business’s
operations, or selling or purchasing a business, a
purchaser will expect to take the relevant assets free of
any encumbrance to suppliers or financiers. Likewise,
a bank or financier will generally require a first ranking
security interest as security for any loans and it may be
necessary for priority agreements to be entered into
with other secured creditors.
WHAT IS RETENTION OF TITLE?
Commonly, a trade supplier will include in their credit
terms or trading terms a provision that ownership in
the supplied goods is retained by the supplier until
the goods are finally paid for by the customer. If you
have a look at your contracts with your supplier, you
will almost certainly find such a clause. As the supplier
remains the owner of the goods they could repossess
the goods if the customer became insolvent or
otherwise failed to pay the account.
LEASES
Likewise, under a lease arrangement the lessor
always retained ownership the leased goods and
could repossess the goods if the lease provisions
were breached. With the notable exception of motor
vehicles, these arrangements were not previously
subject to registration on any register.
The longstanding principal of ownership creating
the greatest right to property is no longer the case
when it comes to registration, meaning if a party fails
to register their “security interest” in goods (even if
they are the owner of those goods) they may lose the
goods to a liquidator of the debtor. Due to the ease
of registering a security interest, many suppliers are
extending their security claims beyond the goods
that they have supplied to all assets of the business.
WHAT SHOULD YOU DO?
The first step is to undertake a search of the Personal
Property Securities Register to determine the security
interests registered against your business and once
you have confirmed the security interests that are
registered, you should make sure that they are all
current and valid. We have seen many examples of
security interests which have been registered over the
wrong entity, in favour of the incorrect secured party
or out of date security interests that are still on the
register.
Business operators should also keep copies of all
documents relating to the security interests. Due to
privacy concerns, the Personal Property Securities
Register is often vague on detail so these documents
will be critical in satisfying a purchaser or financier as
to which assets are encumbered by registered security
interests.
If you need any assistance in searching the register
or reviewing credit terms before you sign a contract,
or if you need assistance in managing this process
for a potential sale or purchase of a business, please
contact myself at Mullins Lawyers on (07) 3224 0230.
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