You pay your accounts promptly on the 20th of each month. Even though your accounts are always up to date you might not realise that there is a public register recording securities you have given to suppliers over goods you have purchased from them.
The PPSA and the PPSR
The public register is set up under the Personal Property Securities Act 1999 (the PPSA) and is called the “Personal Property Securities Register” (the PPSR). Anyone can search the PPSR and see what securities you have given over your “personal property”. However, they must not search the register just to be nosey about you. They are only allowed to search the PPSR for the purposes allowed under the PPSA. Purposes include: searching for their own information, searching to see if property they intend to purchase is subject to a security interest and searching to decide whether to lend money to, guarantee or invest in someone.
The PPSR records security interests given over “personal property”. Personal property is all types of property except land e.g. goods such as stock in trade, livestock, crops and vehicles; intangible property such as hire purchase agreements, company shares, money, trade-marks and patents; and all presently owned property and property purchased in future. The person who has registered a security interest could repossess the property if you don’t comply with your obligations. If a person lends money using that property as security, he or she could sell the property to get paid.
What is the purpose of the PPSR?
By searching the PPSR before you buy or take security over property you can make sure that no-one has an interest in that property that will defeat your interest. For example, if you buy livestock which is already subject to a registered security interest, the person holding the interest could repossess and sell the stock if the seller doesn’t pay that person.
If you sell goods and give possession to the buyer before you have been paid, or if you lease goods or part with possession of them, you can register your interest on the PPSR. If you don’t register your interest it will be trumped by an interest given to someone else that has been registered.
What gives someone the right to register on the PPSR?
No-one can register a security interest on the PPSR over your property unless you have agreed in writing to the security. In the case of your suppliers, the fine print in their terms of trade normally states that they retain ownership of their goods until you have paid for them and that they may register a security interest on the PPSR. You agree to these terms when you sign the supplier’s application form or confirm your agreement by letter, fax, email or other similar means of communication.
Who gets priority when there is more than one security interest?
If you have given security interests to more than one person and you don’t meet your obligations under those securities, the person whose security interest that is registered on the PPSR first, and not the person with whom you made the security agreement first, will have the first right to the goods.
Super priority given to PMSI’s
There is an exception to the general rule that a security registered first takes priority over security interests registered later. An unpaid seller and a lessor can register a Purchase Money Security Interest (known as a “PMSI”) on the PPSR. Provided the seller or lessor registers the PMSI within the time frames and as required by the PPSA then their interest will take priority over any security interest registered beforehand. A PMSI is the type of security your supplier normally takes.
Getting the best from the PPSA
The PPSA and its requirements must be followed carefully. In order to successfully search or register a security interest you should take professional advice.
Please email me at [email protected] with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.
Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.
