Personal Property Securities Register Q&A
Topics covered in this article: Business Owners
Personal Property Securities Register (PPSR) basics:
Why registering financing statements on the PPSR against your customers can be important (and is not a waste of time and money)
Q: What’s the point of registering a financing statement against a customer?
A: If you haven’t registered a financing statement on the PPSR over goods supplied to a customer on credit, if that customer goes broke then someone else may have a better claim to those goods than you, leaving you out of pocket. This happens more frequently than we’d like to see.
Q: What?! They’re my goods until fully paid for, my T&Cs say so.
A: The days of enforcing a retention of title clause are over and have been since the Personal Property Securities Act 1991 came into force. A retention of title clause can give rise to a security interest in goods sold on credit, but you need to go one step further. You need to “perfect” your security interest by registering a financing statement on the Personal Property Securities Register, or PPSR. Who has the best claim to goods in an insolvency situation depends on how your registered security interest ranks in priority against competing registered security interests. Hopefully, you have first priority and therefore the best claim to repossess those goods if a receiver or liquidator is appointed.
Q: You mean I might not have priority? Who else could take my goods?
A: The general rule is that security interests registered on the PPSR earlier have priority over security interests registered later. For example, say a bank has registered its general security interest in all present and after acquired personal property of the business (including your goods) under a GSA. If you haven’t already registered a financing statement over your goods, then the bank will have a better claim to those goods then you and you will be left with only a financial claim in the liquidation for the outstanding amount as an unsecured creditor. Unless, of course, your later financing statement constitutes a “PMSI”, in which case you will have a super priority ahead of earlier registered security interests (including the bank’s), which means you could repossess them if they are still in the customer’s possession.
Q: What’s a “PMSI”?
A: A PMSI is a “purchase money security interest” and provides a supplier with a super priority over goods supplied to a customer on credit, but only if the security interest is registered within a certain time frame. Without PMSIs, trade suppliers would have increased risk because they may be subject to earlier registrations (if any) and therefore wouldn’t necessarily have effective first ranking security over goods sold on credit in the normal course of business.
Q: How do I get a PMSI over my goods?
A: To qualify as a PMSI, if you are selling goods that are “inventory”, your financing statement has to be registered before the customer obtains possession of the goods. If you are selling goods other than inventory, your financing statement has to be registered within 10 days of the customer obtaining possession of the goods. Including a financing statement registration step as part of your standard order processing/customer onboarding can be very important. Adopting a practice of registering a financing statement before supplying goods to a new customer on credit can help avoid any future argument about whether you are supplying “inventory” or not (and therefore which PMSI date applies).
Q: Oops, I missed the deadline. Should I still bother?
A: Yes, especially if you may supply more goods to that customer on credit in the future. You won’t get a super priority for goods supplied before the relevant PMSI date, but you will still have a super priority for any goods supplied after that date.
Q: I didn’t register a financing statement and now they won’t pay me. What now?
A: We get a lot of queries like this. It may still pay to register a financing statement. You may not enhance your priority at all, but it will put a receiver or liquidator on notice of your security interest in goods supplied and you may be able to negotiate their return. In the meantime you need to employ your usual debt collection strategies, and in some cases you might consider issuing a statutory demand.
Q: What else should I know?
A: You can only register a financing statement if you have a security interest in goods that is granted in writing. That means you have to have written T&Cs in place or a written supply agreement that has an appropriate PPSR clause.
Q: Is it a one-off job to register a financing statement?
A: Yes and no. If you are selling serial numbered goods then you need to register a financing statement by the PMSI priority date each time, but if you’re selling general goods then one registration is sufficient. A registered financing statement “lives” for 5 years before it expires. If the trading relationship is also still alive in 5 years, it must be renewed before expiry to keep the original priority date – if you forget and renew after expiry then the good work of securing an early priority date is lost and you join the back of the queue. Importantly, the PPSR system doesn’t give you any reminders, you have to have your own system of diarising a reminder before the expiry date 5 years away.
Q: Anything else I should know?
A: Yes. If your customer has sold the goods then you may still have a security interest in the proceeds from the sale of those goods – but it’s generally harder to enforce, especially when the proceeds are co-mingled and may already have been spent. That is why recourse usually focuses firstly on mitigating losses by repossessing identifiable goods that are still in the customer’s possession.
Registering a financing statement against a customer should be standard operating procedure for any trade supplier that supplies any goods on credit. It is inexpensive, easy to do and you don’t need a lawyer to do it - your sales person or customer service team should be able to do this for you without difficulty.
If you’d like to learn more or want to upskill your team about the PPSR and registering financing statements, Cooney Lees Morgan’s Corporate & Commercial team is well placed to help you. Don’t hesitate to call us or reach out to your usual CLM contact to discuss your situation.
Latest Update: 17 July 2024
