15 August 2018

Registering business security interests to the Personal Property Securities Register (PPSR) is an integral part of any risk management strategy. Equally important is having the procedures in place to ensure these registrations are renewed before their 2019 expiry date.

Thousands of original registrations on the PPSR made in the building and construction industry will come up for renewal early next year. Why? Because many businesses registered on the PPSR when it first commenced in January 2012, and they chose the most common option of a seven-year renewal.

Registering business security interests to the Personal Property Securities Register (PPSR) is an integral part of any risk management strategy. Equally important is having the procedures in place to ensure these registrations are renewed before their 2019 expiry date.

Thousands of original registrations on the PPSR made in the building and construction industry will come up for renewal early next year. Why? Because many businesses registered on the PPSR when it first commenced in January 2012, and they chose the most common option of a seven-year renewal.

In the seven years since original registration, it is highly probable that changes have occurred which may require businesses to make amendments to these registrations. New contracts may have been signed, for example, plant and equipment upgraded, and employees involved in the original registrations may have since left. Supplier, contractor and customer details may also have changed.

These changes all take time to update on the register, and when it comes to the PPSR, timing is everything. If we leave renewals to the last minute, there’s the danger of running out of time because there is more to do than anticipated.

Data integrity is essential to the validity of PPS registrations. The register serves as an accurate reflection of what’s been agreed between the parties. Therefore the consequences can be serious if all details are not up-to-date.

To maintain a robust risk management approach, building and construction businesses would do well to dedicate the time and resources needed to confirm all details are current at the time of renewal.  

Low risk can change to high risk

If a supplier is considered low-risk at the time of PPS registration, it’s a common misconception that we shouldn’t register their details on the PPSR. The unfortunate reality is that risk profiles can change over the course of the seven-year registration period. A low-risk supplier can move towards the high-risk end of the spectrum, thus exposing security interests to vulnerability.

While it may not make sense for a business to declare its security interests, relying on supplier contracts is not enough to minimise the impact of the damage should a supplier find itself at risk of insolvency.

The PPSR, when completed accurately, can provide the assurance that business collateral is protected.

Late registrations have no value

After the first big push for renewals from January 2019, the next challenge will be the subsequent ongoing renewals. For businesses that have been registering on the PPSR since its commencement in 2012, there will be a flow of registrations coming up for renewal, possibly on a daily basis.

It’s important we work renewals into budget considerations and processes, or we risk letting registrations slip through the cracks.

An example which demonstrates how vital PPS registrations are to a business is the story of an Australian materials and mining company that went into administration in 2016. At the time, about 10,000 suppliers were vying for payment of outstanding debt. Many of these suppliers were unsecured creditors who were exposed because their goods were not covered by valid PPS registrations. Since registrations can be invalidated with incorrect or out-of-date details, it is essential that any changes in circumstance are reflected on the PPSR.

On the other hand, one of the largest listed companies in New Zealand, Fletcher Building Limited chose to tackle these challenges head-on after realising the significant return on investment that came from registering on the PPSR. Their initial decision to join the PPSR approximately ten years ago stemmed from their desire to take advantage of the enormous benefit for trade credit suppliers, as well as an interest in educating their customers about the importance of the PPSR.

In the first year after registering, Fletcher Building was able to show a return on investment (ROI) of over 200% for one of its businesses. In three years, ROI rose to over 1200% based on recoveries from secured claims.

Protect your interests

Historically, the lack of clear information and resources on the PPSR may have deterred businesses from registering. This time has passed. Not registering any security interests on the PPSR is now tantamount to risking the loss of assets and potentially livelihoods.

The PPSR is an incredibly useful tool we can use to protect our business’s security assets. This is particularly true for construction SMEs that run lean operations and may not have contingency funds close at hand in the event of a customer or supplier going under. If the original registrant has since left the business, it is essential to pass on this knowledge.

Given the construction industry is the most negatively affected by insolvency, it is crucial that businesses take the necessary steps to update or register security interests on the PPSR. Dedicating the time and resources to making sure business details are correct will minimise any nasty surprises, stress and uncertainty if suppliers or customers become insolvent.

To learn more about business solutions to achieve correct and timely PPS registration and renewals, email us. We welcome the opportunity of discussing your PPSR requirements with you.

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.