What is a Security Interest?
A security interest is an interest in personal property. Personal property includes goods or collateral other than real estate such as inventory, plant, equipment, vehicles and can also include shares, accounts and intellectual property (such as copyright and trademarks).
The Personal Property Securities Act 2009 (PPSA) provides the rules in relation to security interests and how they can be registered and the significance of registration. The mechanism by which the PPSA works is for security interests to be registered.
The Personal Property Securities Register (PPSR) is the central online database that lists all the security interests that may be registered over an individual or business personal property. The register is publicly available and can be searched anytime.
Why Do You Register a Security Interest?
The PPSA provides protection to individuals and business which lend money, lease or rent items or sell goods on credit. The goal of the PPSA and PPSR is to provide more transparency in relation to the liabilities of an individual or business thus reducing risk (especially credit risk and loss) in the community.
By registering a “security interest” on the PPSR, you are telling the world that you have a right to the assets (be it a specific asset such as a car or more general over all property) of the party you have registered the interest (called “grantor”). If you register the security interest within time and properly, you have a degree of protection against the sale of the assets (which is subject to the security interest). That means you can recover the item (or the value in them) if the grantor defaults on payment or becomes insolvent.
By checking the PPSR, you can also get valuable information about the customer that you are dealing with. This is especially so, if you are buying an asset from the customer. At the very least you will be able to ascertain if the customer owns the goods/asset or owes money to someone else secured over the goods/asset.
The other main reason to register a security interest is to maintain your right to the asset in the event the customer becomes insolvent. If you properly register your security interest you can maintain security over the personal property even if the customer becomes bankrupt or is in liquidation. By maintaining security you are in a better position than any unsecured creditors of the customer in bankruptcy/liquidation.
When do you register a Security Interest?
The PPSR is a “first in, best dressed’” principle. That is, the best possible priority and protection will be gained by registration immediately when the relevant agreement which led to the security interest is signed, and particularly before giving possession of goods over to a third party.
Anyone can make registrations on behalf of a secured party once a client account with the PPSR is set up. Generally, a security interest granted by a company is required to be registered within 20 business days of the date the document giving rise to the security interest is signed. If a registration is made after the 20 business days, the security interest will not be effective for six months – meaning that the secured party will be treated as an unsecured creditor (on insolvency of the grantor) until six months after the registration date.
There is no specific time limit for registration over an individual; however, for the best protection, a registration should again be made immediately when the right to any security interest arises.
A party with an unregistered or incorrectly registered security interest will, in the event of insolvency, be treated as an unsecured creditor.
Take Out Points
Our firm acts for individuals and business that need to consider protecting their personal property. If you need assistance regarding security interests and the PPSA call us.
Written by Heath Adams