September is here - time for a PPSA spring clean?
Incorrect or unnecessary PPS registrations can cause major problems. Preventative maintenance is recommended.
The registration system created by the Personal Property Securities Act 2009 Cth. (PPSA) is creating a lot of registrations. These are cluttering up the register and chewing up a lot of people’s time.
We have heard that the record for a number of registrations against one company is in the high thousands. There were 995 found for the Hastie Group when it collapsed. For any medium to large company we normally expect to find dozens or quite often hundreds of them.
All of these registrations have to be read and managed in one way or another when it comes time to sell assets or refinance.
For example, if a business is looking to sell assets, the purchaser’s lawyers might search the register and find a number of very widely (or weirdly!) worded registrations that could mean that the target assets are subject to security interests.
Often then the purchaser’s lawyers will have to sift through these registrations. They may have to contact the secured parties to be sure their client isn’t buying subject to someone else's interest. But they might not get answers quickly or at all. For example in the recent Hastie insolvency it was reported that the administrators told the Court that queries to registered secured parties were simply unanswered in many cases.
If you are a borrower giving security you will almost certainly end up paying for your bank’s lawyers to do this exercise before giving the bank the all clear to lend.
We recommend that businesses take the time to search the register now and see what others have registered against them. Usually the review will uncover some or all of the following:
- Registrations that are obviously wrong or are too broad. We commonly encounter registrations in the collateral class ‘Other Goods’ which could cover a very wide range of assets. On investigation the security interest is only in respect of a small class of goods (e.g. valves) supplied by the particular supplier. But the supplier did not appreciate the courtesy or desirability of a narrower collateral description.
- Registrations incorrectly using the collateral class ‘all present and after-acquired property’, perhaps out of confusion with the description of proceeds which also uses those words but in a different way.
- ‘Just in case’ registrations. Many suppliers such as hire businesses and retention of title sellers just uploaded bulk registrations from spreadsheets taken from their customer records. Registrations were effected against customers who had not had any dealings with the supplier for many months or even years in many cases, with no real chance of any further dealings either.
- Suppliers who have buried ‘all assets’ security interest wording in their supply terms and this had gone unnoticed by the purchasing business. These suppliers then register (as they are entitled to do) an ‘all present and after-acquired property’ security interest – the equivalent of a fixed and floating charge security in pre-PPSA terms. This is commercially inappropriate in most cases.
- The weird and the wonderful. For example:
Collateral description: ‘APAP’
‘All present and after-acquired property except for any that is not the subject of a security agreement’
Once the review is complete, businesses have a number of tools in the PPSA to get rid of the clutter.
These can include reminding the supplier that it is not lawful to register unless the supplier reasonably believes it has or will have a security interest and the threat or issue of amendment demands under the legislation.
Appropriate clauses in supply agreements can assist in preventing unjustifiably wide registrations.
For customers in a demonstrably strong financial position or who have muscle in the market, one of the best options may be a letter to the supplier saying that there will be no further orders unless the registration is removed.
Far better to do this spring cleaning now rather than attempt it on the eve of a critical business sale or refinancing!
Author: Oliver Shtein