2 February 2019

When you renew your expiring registrations on the PPSR, should you be registering “Transitional” or “Non-Transitional”? With thousands of registrations up for renewal in 2019, it’s a question that many businesses will soon have to answer. If you get it wrong, your registration may be invalid, and you may lose your goods.

When the Personal Property Securities Register (PPSR) commenced on 30 January 2012 there was an incentive to get businesses to register – there was no fee to register existing security interests. These are called Transitional security interests. To take advantage of this offer, businesses had to declare whether they were registering a Transitional or Non-Transitional security interest.

Although Transitional registrations were designed to protect future supplies, there was disagreement as to whether the Personal Property Securities Act (PPSA) achieved this. Many lawyers believed Non-Transitional registrations were required to protect future supplies.

Faced with conflicting legal opinion about which to choose, many businesses decided to create dual registrations – one Transitional to protect any goods or equipment supplied before 30 January 2012 and one Non-Transitional to safeguard future supplies. Others chose to register one or the other.

At the time there were no fees to create a Transitional security interest, but this has since changed. Now there are fees for both Transitional and Non-Transitional registrations.

When it comes time to renew your PPS registrations, you won’t want to pay for both unnecessarily – so which should you choose?

What Transitional and Non-Transitional means

The PPSR doesn't create rights; it records rights. Your rights come from the security agreement between yourself and your customer. For trade credit suppliers selling goods subject to a Retention of Title (ROT) clause, the security agreement is normally the terms and conditions of trade signed when lodging a credit application. 

This agreement creates a security interest over the specific goods you supply. Registering on the PPSR records this interest.

The PPSA commenced on 30 Jan 2012 and any security agreements existing before this date are called Transitional security agreements. The security interests created by this security agreement are called Transitional security interests.

Any security agreements created after 30 Jan 2012 are Non-Transitional. The security interests created are similarly Non-Transitional.

What the Transitional vs Non-Transitional debate is all about

There was argument in the legal community about what constitutes a security agreement.

Some advocated that the terms and conditions attached to the credit application contained the security agreement. Others believed this only indicated intent. They argued that the security agreement occurs when a customer wants to buy your goods, and their order is accepted. This second line of argument concluded that even if your terms and conditions of trade pre-dated 30 January 2012, all the sales you made after this date were Non-Transitional.

If you chose Transitional when you first registered

If you chose to create Transitional registrations, you might have been reassured by the outcome of the Central Cleaning Supplies case. This court case found that the original terms and conditions created the security agreement, which produces the security interest.

While Transitional registrations were found to be effective in this legal decision, it doesn't necessarily mean this will always be the case.

If you chose Transitional but changed your terms of trade

Your Transitional security interest claim becomes less certain if you’ve rewritten your terms of trade over the last seven years. Why? Because an insolvency practitioner may say that your new set of terms create a new security agreement which is Non-Transitional. You need to argue that you have merely updated rather than replaced your terms of trade. 

If you chose Non-Transitional and redrafted your terms of trade

You are in a good position for a straightforward renewal if you chose Non-Transitional and had your terms of trade re-issued when the PPSA came in. This is provided the terms of trade were re-written with the PPSA in mind, and you registered Non-Transitional security interests on the back of these terms.

If this applies to you, it's a good idea to check your registrations before renewal to ensure you have identified your customer correctly and per the PPS Regulations.

The way forward

You may wish to take legal advice to suit your circumstances, but our general counsel is to make sure your terms are rock solid – that they undoubtedly create a new security agreement. You can then register a new Non-Transitional security agreement to protect future supplies.

Use phrases such as “these terms supersede or replace earlier terms” rather than “update”. Also – bear in mind that this registration only protects future supplies. This means you should complete this exercise as soon as possible to allow for collection of all monies due on current supplies before your current registration expires. The greater the period of overlap between existing and new registrations, the better your protection.

Make sure you register within 20 business days of re-issuing terms to avoid falling foul of section 588 of the Corporations Act.

Redrafting your terms is particularly important to provide clarity around trading if you’re a mature company that has been in business for decades, with customers that have been trading with you for just as long. Terms and conditions have an important role to play in informing your customers of their duties, roles and responsibilities.

When redrafting your terms of trade to accommodate the PPSA, look at what other terms might need an update. Warranty provisions or consumer guarantees, for example, might need tweaking to reflect legislative changes. Put your business at less risk of uncertainty and misunderstandings with a robust set of terms.

It’s important to note that if you delay taking action to just before your PPS registration expires, you will be owed money against your old terms. Once again you may have to consider dual registrations.

But if you act promptly and renew now, the vast majority of the money owed will be collected before the current registrations expire.

Do a review early in 2019 to see if there are debtors (businesses that owe you money) outstanding from the current period. Most of your customers will have paid by then, but if any haven’t, you may decide it’s safer to renew the Transitional registrations for these customers.

Allow your other Transitional registrations to expire.

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.