Are you a small business? Then you need to know about the PPSR.

The PPSR (Personal Property Security Register) is essentially a notice board where you are able to ensure that anything you own or have an interest in is recognised as yours until you no longer have any interest in it.

The PPSR covers any item which can be deemed to be personal property. Personal property is any item that is not land, buildings or fixtures. Examples include cars, boats, crops, livestock, artwork, equipment, tools, stock in trade as well as some intangible property.

The PPSR has operated since 1 January 2012. Some 5 years on many businesses still have no idea about it and the ramifications of not being registered. Recent high profile business collapses are a good reminder to think about whether you are doing enough to protect your business.

Most businesses when supplying product such as livestock, equipment, steel, timber, or any type of stock in trade have what is known as a retention of title clause in their terms of trade. This clause fundamentally states that a product is owned by the business until the purchaser has paid for it in full – even if the purchaser receives the product prior to full payment.

Prior to the introduction of the PPSR this clause was relied upon by a business to say that an item not yet paid for was still the property of the supplier if a purchaser went into liquidation. Unfortunately, this is now not the case. Similarly, in lease to buy arrangements, if your interest in the item is not registered on the PPSR you may not be able to recover your item.

A good way of understanding the benefit of registering your personal property on the PPSR is illustrated below.

Let’s say you own a racehorse worth about $1 million and you agree to enter into a lease to buy arrangement with a third party. As part of the arrangement, you obviously retain ownership of the horse until full payment has been received.

You forget to register your interest in the horse on the PPSR.

After a time, the third party want finance from a bank for some property improvements. The bank agrees to lend the money and wants to take a charge over the assets of the property as security for payment. The bank then registers its interest in all of the assets on the property on PPSR.

Eventually the third party’s business fails and they go into liquidation. However, before this happens you realise that the third party have not been paying you in accordance with your lease agreement and just prior to the liquidation you retrieve your racehorse from them.

You are very relieved that you have retrieved the horse; at least until the bank takes you to court for the return of the racehorse.

At Court, the bank argues that because your interest in the racehorse was not registered on the PPSR the bank was entitled to possession of the racehorse. The Court agrees and you lose your racehorse.

You are then left without your $1 million racehorse and with the third party in liquidation, no way to recover your money.

This case actually happened in New Zealand and demonstrates that the ramifications of not registering an interest on the PPSR can be catastrophic.

Is your business protecting itself enough? For assistance please call O’Farrell Robertson McMahon on 03 5445 1000.