13 August 2018

The seven-year anniversary of the Personal Property Securities Register (PPSR) is fast approaching. It’s an important date to note because registrations will start expiring from 30 January 2019 for those building and construction businesses that made seven-year registrations, which is the most common registration period.

And while January 2019 might sound like a long way off, leaving registration renewals to the last minute can have serious consequences.

The PPSR operates on a ‘to the second’ registration basis. If registration renewals are left until just before expiry, you run the risk of registrations lapsing and losing protection over commercial interests.

The project-based, contractual nature of the construction industry can leave the security interests of many businesses vulnerable. Failing to register security interests can prove costly not just for the unregistered business, but also its contractors, sub-contractors, suppliers and consultants.

What is the PPSR?

The role of the PPSR is to protect suppliers and lenders when a customer becomes insolvent.

According to Equifax data from 20151, when businesses across all sectors were being forced into external administration, the construction industry was the worst affected by insolvency due to low commodity prices.

Although external administration in the construction industry decreased by 29% from Q4 2014 to the same period in 2017, there is no room for complacency. Insolvency does not happen overnight, so knowing the warning signs and protecting security interests from the outset can greatly reduce the impact if a customer goes bust.

Registering on the PPSR solves the problem of ‘apparent ownership’ of goods and equipment. For example, suppliers most commonly create PPS registrations to reclaim goods they have supplied but haven’t been directly paid for. This can apply to any equipment a supplier leases to complete a job. Examples include scaffolding, drilling devices, fleet vehicles, digging machines, piping, project-specific materials and any construction plant held in situ, regardless of whether it is used within or outside of the parameters of a contract.

It’s also possible to register retention of title (ROT) based interests on the PPSR, where ownership of goods does not pass to the purchaser until the price is paid in full.

For goods and equipment (referred to as ‘personal property’ under the PPSR) left onsite over the course of a job, PPS registration provides protection against the risk that this ‘personal property’ is taken and sold upon insolvency.

Consequences of not renewing

A PPS registration cannot be renewed after it lapses. This can mean that any previously registered claim to property becomes unsecured and leaves all property that was registered before expiration up for grabs. If registrations expire, your business can go to the bottom of the list of claimants to that property.

Even if a business quickly re-registers after letting a previous registration expire, the security on the property can be ineffective if the debtor becomes insolvent within six months of the new registration being lodged.

Common pitfalls

We cannot overstate the importance of ensuring registrations are correct at renewal. The renewal process offers a convenient opportunity to correct registrations. Even if everything was correct at the time of registration, factors such as customer details or the description of goods might have changed and now require an update. These updates take time, and a common pitfall is not leaving adequate time to prepare before the expiry deadline.

Another pitfall is registering based on a lack of knowledge or poor PPSR advice. Let’s take the example of a Purchase Money Security Interest (PMSI), which is a security claim enabling lenders who provide financing for goods or equipment to obtain priority ranking. If a business has registered on the PPSR but isn’t aware that it requires a PMSI, that business could still find itself at the bottom of the creditor priority list.

For the right advice and to access a wealth of data and expertise on the PPSR, email us, and a PPSR Specialist will contact you to discuss your requirements. Equifax has a range of business solutions to help building and construction businesses register and renew their security interests on the PPSR on time and error-free.

1 Based on Insolvency Report by Equifax – CY17, https://www.equifax.com.au/news-media/insolvencies-decline-pockets-risk-remain

 

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.