How to protect your stuff using the new “PPSA” register
Good news for those of you who could never work out what a debenture really was“ debentures are no more.
In law there is “real property” being land, and “personal property” being things not nailed down - cars, washing machines, pianos etc. It is the latter that tends to go missing especially when you are pursuing someone for a debt. We have had to throw out over 70 perfectly good personal property registers, with the consequent loss of Australian legal jobs, in order to follow a one register system worked out by Canada, New Zealand and the US.Â We Australian lawyers were unable to follow their legislation exactly, as over the years Australia has had some very unique challenges as far as personal property is concerned. Ned Kelly for instance. Some of the differences are subtle, such as when we call it the “Personal Property Securities Act” and the Canadians call it the “Personal Property Security Act”.
What did the Americans call it? I don’t know, but I am guessing something irritatingly more clever than the Canadian lawyers.
What you need to know:
- Register a “security interest” by filing a “financing statement”. Otherwise risk someone else jumping the queue, registering and gaining priority over your interest.
Business owners -
All sorts of security interests can be registered against anything you have bought but not paid for e.g. your stock. So, do a search well in advance of selling your business or be prepared to run round like a scalded cat on the day of sale.
This is all very straightforward, I hear you say. Why don’t we just get rid of our lawyers and do what the American lawyers tell us. If you have ever spoken to an American lawyer, you will know why that is not such a good idea. Anyway, it is not that straightforward.
Seven things to know about the new PPSA legislation
- If you have no personal property, for instance your children have taken it all, you have nothing to worry about.
- If you own personal property but someone else has got it then you could register a security interest to stop them disposing of it. Here are some examples; you supply goods on sale or return, your terms and conditions say that you retain ownership until paid, debts assigned to you, interests in your IP which someone else is using and equipment leases. There are lots of other examples, e.g. Hire Purchase. But you get the picture. Buying things from someone down the pub may never be the same again.
- Generally, if you let someone have your property for over one year (in some cases 90 days) you can register an interest. For instance, I was given a Tom Tom GSP car system for a Christmas present but I have not seen it since, as my children took it. If they go broke I could lose the GPS and the car.
- If you have a registered right already e.g. a trade mark, you need do nothing, your registered interest will stay protected and will be migrated over to the new register. But the Act creates the opportunity to register your interest in other rights e.g. vendor finance or retention of title clauses. Basically, you get a two year grace period to register such interests or you lose your protection against queue jumpers.
- There are many exceptions often based on common sense notions of what would be ridiculous. If you are unsure of what would be ridiculous it is best to ask your lawyer.
- There is no particular format for granting a security interest and you can do it in one or two lines. This is the good news unless you give away a security interest, then things could get very complicated and expensive for you if you want to sell some personal property which is subject to that interest.
- The PPSA tries very hard to offer cheap and easy protection to business owners while not being stupid about letting people off the hook.
In short, things will go on much as they were before (except for certain industries â�“ see below) it is just that there will be a whole lot of searching going on by us lawyers.
The new personal property legislation“ Are you in an AT RISK industry? Seven examples for you to quickly check to decide if your business is at risk
If you are in the business of supplying goods without getting money up front, here are seven examples where you can lose the goods if the customer goes broke or sells up and skips town, if you have not registered your interest:
- You are a wholesale clothing supplier. The shops that you supply are forever going broke in these uncertain times. You put a clause in your terms and conditions saying the goods remain yours until they pay. This will allow you to reclaim the clothing remaining unsold provided you have registered your interest.
- You supply vehicles of some type. Some customers take the vehicles for over 90 days. They may be just good customers who take out the same vehicle often so it could be substantially 90 days. Â You will lose the vehicle if you have not registered your interest.
- You own a vehicle and let a contractor drive it for over 90 days. This does seem extreme but if the contractor who is not your employee, goes broke, the vehicle will be seen as part of their business and could be taken by the liquidator, if you have not registered your interest.
- You supply materials to the building industry.
- Asset protection -You have a holding company where you hold all your non-real estate assets/equipment in a separate name but you allow the operating company to use them.Â For example, a trade mark or a franchise.
- You rent out property for a year or over which includes furniture or other equipment. If the tenant goes broke the liquidator can take the equipment.
- You hire out any equipment to a good customer for a year or for several periods which are substantially a continuous period of a year.
If the customer who has hold of your goods does not go broke or sell up and skip town there is no problem.Â But if they do, registering your interest can help you.
Is it more complicated than this? Of course, it is. This is new-fangled US inspired law we are talking about here.
For instance, for contracts entered into before 30 January 2012 the legislation allows you a grace period of sorts.
The legislation does hold risks for certain industries and registration is relatively cheap and simple once you decide where the risks are for you. For more information go towww.ppsr.com.au/. If in doubt, speak to your lawyer.
© Paul.Brennan 2012. All rights reserved.
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