Read about why the Personal Property Securities Act is important for buyers, lenders and investors from a business accountants view.
The Personal Property Securities Act and the PPSR was enacted to establish a priority scheme in relation to “security interests” held in personal property such as vehicles, equipment etc (i.e property other than land).
A crucial aspect to this scheme was the establishment of the Personal Property Securities Register (“PPSR”) that replaced 23 separate State and Territory registers on 30 January 2012.
What does this mean?
When an issue arises involving financial matters, typically a default on payment, the creditors will take action to recover what they are owed. Such action could lead to bankrupting of an individual or the liquidation of a company. At this point in time it is necessary for a trustee or liquidator to determine which debts are given priority and this is where the PPSA becomes involved.
PPSA is not concerned with ownership, but with priority.
The PPSA determines priority under a set of rules that distinguishes between what are referred to as “perfected” and “unperfected” security interests. The holder of the security interest is referred to as a the “secured party”
The default position is that a perfected security interest takes priority over an unperfected security interest (although there are exceptions in relation to certain security interests)
A perfected security interest = similar to a secured interest*
An unperfected security interest = similar to an unsecured interest**
*Note however, the fact that the secured party holds a secured interest in an asset does not of itself make it perfected. A failure to perfect the interest will generally leave the secured party in the same position as the other unsecured creditors holding unperfected security interest.
** If a security interest is not perfected it is , by default, an unperfected security interest
Not only does the PPSA (and the PPSR) allow secured parties to maximise the priority of their security interest it also provides other advantages, including:
For buyers: prior to acquiring any property, a potential buyer can search the PPSR to ascertain whether a security interest exists in relation to the property (online searches are available)
For lenders: prior to loaning money or providing credit to an entity, a lender can confirm what charges exist in relation to the borrower’s assets. Particularly, if the borrower offers up collateral over which there is a pre-existing security interest.
For investors: prior to acquiring an investment (eg share in a company or a unit trust) a potential investor can search the register to determine whether any security interest are held over the target entity’s property. The existence of such security interest may not be readily ascertainable from the entity’s financial statements.
Would you like to know more about how the PPSA relates to you? Just call us on 3263 7030.
Material courtesy – National Tax & Accountants’ Association Ltd Oct – Nov 2013