PPSA: An Introduction

Transcription

1 PPSA: An Introduction Client Information Services National Credit Insurance (Brokers) Pty Ltd

2 PPSA: An Introduction National Credit Insurance (Brokers) Pty Ltd 165 Grenfell Street Adelaide SA 5000 Phone NCI is delighted to provide our clients and partners with general advice on the PPSA legislation. This is relatively young legislation and various parties can still argue as to why PPSR registrations might not be effective, so little of which has resulted in helpful legal precedent. We would strongly advocate our clients seeking their own professional legal advice in such matters. 1

3 Table of Contents Why does everything have to be so complicated?... 3 The tyranny of jargon... 3 Thinking in terms of Security... 4 The 4 key components... 5 The Retention of Title Clause... 6 Imagine two suppliers... 6 Other common security interests... 8 Consignment Stock... 8 Leasing... 8 More than just theory!... 8 Benefits of Registration Proceeds Enjoying a continuing interest Unfair Preference Claims Secured Creditor status Establishing priority Purchase Money Security Interest Priority & Section Keeping the money flowing The Section 64 Letter Getting it right! NCI s PPSR Services The Debtor Wash Designed for trade credit suppliers Glossary Index

4 Why does everything have to be so complicated? We want you to understand that we feel your pain! The Personal Property Securities Act (or PPSA) is 300 pages of Australian legislation passed at the end of 2009 and coming into force on 30th January When the PPSA was introduced, New Zealand had already had the best part of 10 years of their own PPSA legislation under their belt - although it is worth noting that New Zealand s version of the Act only runs to just under 140 pages. You might be forgiven for thinking that, being over twice as long, the Australian PPSA would perhaps be more specific or clearer in detailing how the Act should work perhaps a more refined piece of legislation? However, our PPSA s 300 pages is positively dwarfed by the 530 page official review of the Act containing nearly 400 recommendations for its improvement! So, long story short, the Australian PPSA is over long, over complex and goes over most peoples heads! Why are we starting our introduction in this negative tone? Make no mistake, the PPSA is incredibly important to trade credit suppliers, and we re going to keep emphasising this throughout the guide, but there is no hiding the fact that it is also incredibly complicated, and if you haven t picked up everything straightaway, it is most definitely not your fault! The tyranny of jargon PPSA jargon such as Secured Party Group, Giving of Notice Identifier, Collateral Class, and, the dreaded, Purchase Money Security Interest will be daunting but, if you persevere and work your way through this guide, you may well find that the PPSA is something that can work for you rather than just being something that administrators and liquidators will repeatedly use against you. What follows should lead to you building a confident understanding in the basic workings of the PPSA and give you a solid foundation to cope with any number of weird and wonderful situations that might get thrown at you. 3

5 Thinking in terms of Security A different perspective on trading arrangements In trade credit we think in terms of debt and money owed, and this tends to colour our whole outlook on our usual trading arrangements we often refer to our customers, for example, as Debtors. This is why we sometimes find the PPSA s approach so difficult to understand. The PPSA is not interested in amounts owing, it is not even interested in underlying supply obligations. It is only interested in circumstances where some form of property is being used as collateral under a security agreement. Unfortunately, we are not used to thinking in terms of Collateral and Security Agreements. However, outside of our business lives, one of the biggest financial commitments we make is when we get our first home. We borrow money from a bank in order to buy a house and the bank takes a security interest over the house to protect itself from us failing to make the agreed loan repayments. In this scenario the house is the Collateral and the clause in our loan contract that allows the bank to take possession of our house is the Security Agreement. While a home mortgage might provide a good example for introducing the idea of collateral, in this case the collateral is Real Estate (real estate being land or buildings attached to land) and the PPSA doesn t apply to real estate property. The PPSA concerns itself with Personal property securities and, in this context, personal property is, any property that doesn t count as real estate whether that property is a bar of chocolate, a diesel generator, or something less tangible, like a licence to use a registered brand name for instance. Perhaps a better example might be where you borrow money from your bank in order to buy a car and the bank includes a clause in the loan agreement giving them the right to take possession of your car in the event you don t repay the loan. In fact, security interests over cars account for a little over half of all the registrations on the PPSR and well over half of all searches. 4

6 The 4 key components In PPSA terms, the Collateral and the Security agreement are two of the four key components the other two being the body granting the security right over the collateral (the Grantor) and the entity benefiting from that security right, the one that gets to take possession of the property if the underlying loan or sale collapses (the Secured Party). In a trade credit context the Grantor will usually be the debtor and the Secured Party will be the supplier. Without those four components you cannot lodge a PPSR registration and without a PPSR registration those security arrangements will not be effective should an administrator, receiver, liquidator or bankruptcy trustee be appointed. A registration on the PPSR acts as a wax seal authorising the security arrangement in PPSA terminology, a registration perfects the security arrangement, and an unperfected security arrangement will not be effective. 5

7 The Retention of Title Clause Making sure what s yours stays yours Taking a security interest is not just the preserve of those lending money, trade credit suppliers will also take security over the goods they are selling. The most common form of security for those selling goods on credit will be the Retention of Title clause. At its simplest, a Retention of Title clause need be nothing more than a single sentence to the effect that, the goods being sold remain the seller s property until they ve been fully paid for. In fact, a relatively common version of a Retention of Title clause reads as follows: Title to the goods shall remain with the seller and not pass to the buyer until the purchase price for the goods has been paid in full and received by the seller. Unfortunately, anything that looks simple probably won t last too long once lawyers get hold of it, so there ll often be additional provisions allowing for on-sale of the goods, stipulations as to who shall be responsible for loss or damage, what rights the supplier might have to enter the buyer s premises to repossess the goods etc. But, whether it s a single sentence or a whole paragraph, the Retention of Title clause (or ROT) is a security interest as far as the PPSA is concerned. And, as with all security interests over non-real Estate property, it must be registered on the PPSR if it is to be at all effective. Imagine two suppliers Imagine two suppliers, each with their own Retention of Title clause: The first has an ROT written by a legal genius covering every conceivable eventuality; The other has a single sentence hand-written on the back of a beer mat. Both have been accepted by the buyer. If the beer mat version is the only one to have been registered on the PPSR then that will be the only ROT that has any chance of success in the event that the buyer goes into administration. And, under the rules of the PPSA, any security interest that hasn t been properly registered on the PPSA will vest with the buyer in the event that buyer goes into administration or liquidation. Vesting isn t a particularly familiar term to many of us, but, in this context, it basically means that, even though you might have a contract or written agreement 6

8 clearly stating that certain property is owned by you, you will lose that property to the liquidator if it is the subject of an unregistered security interest. This is such an important point that we re going to say it again. A security interest that is not registered on the PPSR will be ignored by Insolvency Practitioners and any collateral or property subject to that security interest will simply be taken by the administrator or liquidator to do with as they will. 7

9 Other common security interests It s not always intuitive While technically there may be a case for treating a Retention of Title clause as simply a statement of ownership rather than as a security interest, I think we d probably all concede that the way it s commonly used is consistent with it being a form of security it is, after all, a way to place pressure on a buyer to make payment. And, in any event, to avoid misunderstandings, the PPSA specifically lists Retention of Title arrangements as security interests under the Act. What might be a little harder to get one s head around is that Consignment Stock arrangements and long-term Leases are also specified in the PPSA as being security interests. Consignment Stock A Consignment Stock arrangement is one where a business will hold a supplier s stock on the understanding that they will attempt to on-sell it. When an item from that stock is on-sold the business will then be deemed to have formally purchased that item and pay the supplier accordingly. The business is effectively holding the supplier s stock on a sale or return basis. Although this sort of arrangement isn t one that would intuitively be considered a security arrangement, that is exactly how it is treated under the PPSA. Thus, if a supplier has a Consignment Stock agreement in place with one of their customers and that customer goes bust, a liquidator would be able to seize and refuse to return any of the goods owned by the supplier that their customer had been holding UNLESS the supplier had registered their Consignment Stock agreement on the PPSR. If treating a Consignment Stock arrangement as a security interest seems a little counter-intuitive, the concept of security is stretched even further by the PPSA also deciding to treat long-term leasing arrangements as a form of security. Leasing Under the legislation, if a lease allows for a hire period of 24 months or longer, it should be registered on the PPSR. If it is not registered and the business taking the equipment on hire has a liquidator appointed, not only will the hire company have lost any unpaid hire fees, they will also lose the equipment they hired out! More than just theory! These are not hypothetical projections as to how the Act might work; there are plenty of real-life cases demonstrating that this is how the Act does work. In 2012, Jackson s Rare Guitars in Camperdown had administrators appointed and $850,000 worth of guitars being held on consignment was seized. 8

10 In 2015, with the collapse of the Forge Group in WA, KordaMentha, as receivers, seized $50 million worth of turbines being leased from the American company, APR Energy. Court action by APR Energy failed to curtail the receivers rights to the turbines and $50 million of equipment was lost because APR Energy failed to lodge a couple of $10 registrations on the PPSR. 9

11 Benefits of Registration It s not all sticks, there are some carrots too If the serious implications of not registering on the PPSR were not incentive enough, there are also a number of additional benefits that come from lodging a registration. For suppliers with a Retention of Title clause, their collateral is represented by the goods they have supplied; however, what happens when those goods are on-sold before they ve been paid for? Proceeds Under the PPSA, the supplier s security rights can extend beyond the physical goods they supplied and apply to any proceeds their customer may receive from their on-sale. This would also apply to suppliers selling goods under Consignment Stock arrangements. In practice pursuing proceeds can be a messy and often fruitless endeavour but there can be quite a bit of success where on-sale monies are received after the appointment of an administrator, receiver or liquidator. Enjoying a continuing interest One, often overlooked, benefit of a PPSR registration was almost entirely unanticipated at the outset and probably owes much to the complicated nature of the PPSA and the widespread uncertainty there still is concerning its scope. When buying a motor car, the prospective purchaser is strongly advised to conduct a search on the PPSR against the car s VIN number (its Vehicle Identification Number) to ensure that when they drive away with it some finance company or other interested party isn t going to chase them down and claim superior rights to the car because they have a registered security interest over it. This legitimate anxiety over getting clean, unencumbered ownership over a car also spreads, often less legitimately, to other purchases. Trade credit suppliers can sometimes find themselves approached to remove a registration over one of their customers because its presence is considered to be hindering the customer s sale of some real estate property or other business asset. 10

12 While the PPSA, as we know, doesn t apply to real estate property and the supplier may have no legitimate security interest in any of the other business assets of their customer, the supplier may, nevertheless, find themselves in the position of having some unexpected leverage in getting an outstanding account balance brought up to date. Needless to say, a PPSR registration should never lightly be surrendered or discharged while there are still outstanding monies on the account. However, one of the biggest benefits of a PPSR registration (aside from ensuring a security arrangement is not dismissed out of hand) comes in the opportunity it presents to mount a defence against an Unfair Preference claim. 11

13 Unfair Preference Claims A new line of defence In order to properly look at a PPSR registration s role in defending against Preference Claims, we need to first look at what a Preference Claim is and what it involves. Under the Corporations Act, a liquidator, when appointed to an insolvent company, starts their work with the presumption that the company had been in financial difficulty for some time before their appointment conceivably, they may have already been technically insolvent. One of their first actions will be to look at all the payments the company made during the previous six months and write to the recipients asking for the money to be returned. The idea being that those lucky creditors that were paid had been given unfairly preferential treatment when compared with other creditors that had not been paid. The Corporations Act makes it quite clear that all creditors should be treated equally with none benefitting to the disadvantage of others. This right by liquidators to recover such payments is a huge cause for distress for credit managers, particularly because it is most likely to penalise those who have been most efficient and effective in collecting overdue accounts. However, there are a few defences open to creditors against a liquidator s preference claim, the main one being that the payment in question was made against a secured debt. Secured Creditor status Prior to the PPSA s introduction, a Retention of Title right was not considered to be a security interest, but, now that it is specifically recognised as such, creditors that have registered their ROT on the PPSR, have the opportunity to argue that they were secured creditors and thus entitled to retain any alleged preferential payments they received. Unfortunately, the mere existence of an ROT clause, and the PPSR registration perfecting it, will not be sufficient on its own to defeat the liquidator s claim. The creditor will need to demonstrate that, at the time they received the disputed payment, the value of their security was sufficient to cover the value of the payment received. This is an important consideration and understanding how this works is an important step in understanding how ROT rights work under the PPSA. If our supplier delivers $30,000 worth of stock on 30 days credit, he will be owed $30,000, and, on day one, his ROT security interest will be worth $30,000. However, if, after a week, the buyer has on-sold $5,000 worth of that stock then the supplier will still be owed $30,000 but the value of his security (his right to recover his unpaid for goods) has reduced to $25,

14 By the time the 30 day credit period is up, the buyer may have used up or on-sold all but, say, $5,000 of the stock that had been supplied and, although the supplier will still be owed $30,000, the value of their security will only be $5,000. Thus, at that point in time the supplier is a secured creditor for $5,000 and an unsecured creditor for $25,000. Day O/S Debt Stock on-sold Stock Held %age Secured 1 $30,000 $0 $30, % 7 $30,000 $5,000 $25,000 83% 14 $30,000 $7,000 $18,000 60% 21 $30,000 $5,000 $13,000 43% 30 $30,000 $8,000 $5,000 17% So, although the existence of a PPSR registration may provide an opportunity to raise a defence against a liquidator s preference claim (one that wouldn t have existed pre-ppsa), the strength of that defence will have more to do with the value the supplier had in their security interest at the time payment was made than how much their security had been worth at the outset. 13

15 Establishing priority Who wins between competing security interests? Hopefully, by now we ve made it sufficiently clear that registration of a security interest on the PPSR is necessary in order to ensure its effectiveness. However, registration on the PPSR also serves another purpose that of determining the relative priority, or ranking, of security interests; which security interest should take precedence over another. Let s imagine a scenario where Widgets P/L is looking to obtain finance to refurbish its factory. First, Widgets obtains a loan from ABC Bank to repair cracked walls and flooring and to give the whole factory a new lick of paint. As security for their loan, ABC Bank takes a general security interest over all the property of Widgets P/L. While the loan documentation is completed promptly and the money handed over, it takes another two weeks for ABC Bank to record their security interest on the PPSR. In the meantime Widgets decide they also want to add a new tea room to their factory and obtain a loan for this from DEF Bank. Just like ABC Bank, DEF Bank takes a general security interest over all the property of Widgets P/L as security for their loan. Unlike ABC Bank, however, DEF Bank records their interest on the PPSR straightaway. Widgets P/L now has two loans, from two different banks, each with a security interest over all Widgets P/L s property. ABC Bank provided the first loan but DEF Bank lodged the first registration. Later that year, the economy takes a downturn; Widgets P/L has lost a major customer and is unable to pay its debts as they fall due. A Liquidator is eventually appointed. It quickly becomes clear that there is not enough available money to repay both of the bank loans, but there is enough to repay one of them. The Liquidator needs to decide which bank s security interest has the higher ranking ABC Bank who provided the earlier of the two loans, or DEF Bank whose loan came later but lodged an earlier PPSR registration? The Liquidator will give the priority to DEF Bank because their earlier registration gives them the higher ranking. 14

16 But what if both banks had happened to have lodged their registrations on the same day? The first in time principle will still apply and the Liquidator will be able to see, not only to the day, hour, and minute a registration was lodged, they will also be able to see to the nearest second, when it was lodged! When it comes to PPSR registrations, timing is hugely important. However, there is one type of security interest that can leap-frog the priority queue. This type of security interest is given a super-priority and is known as the Purchase Money Security Interest Yes, we know, a bit of an anti-climax and quite a mouthful to boot. The Purchase Money Security Interest is abbreviated to PMSI and, when spoken aloud, is pronounced as Pimsy. A PMSI is a security interest where: the collateral secures its own purchase price. While this may not be the most familiar way of looking at it for most of us, what is being defined here almost perfectly describes a Retention of Title arrangement! Under an ROT the goods being supplied are used as collateral against those very same goods not being paid for. Whether you want to commit the PMSI definition to memory or not, it should be enough to remember that: In fact, not only will an ROT arrangement be a PMSI, but Consignment Stock arrangements and Leasing/Hire agreements will also be treated as PMSIs. This is excellent news for trade credit suppliers. Not only will registration on the PPSR ensure the effectiveness of their ROT, it will also give that ROT a super-priority that will rank higher than any Bank s general security interest, no matter how much earlier those interests may have been registered. So while it may seem as though a security interest over everything will be pretty powerful, everything in this context just means everything that happens to be left after ROT suppliers have taken their unpaid for goods back. 15

17 Priority & Section 64 Testing the limits of the PMSI super-priority We re going to keep looking at Retention of Title arrangements, PMSIs, and questions of priority a little longer because this is particularly relevant to something that is both very common and very confusing for trade credit suppliers the Section 64 letter. We mentioned earlier, that one of the additional benefits from registering an ROT on the PPSR was that it extended the supplier s rights beyond merely their ability to recover goods they supply; it also gave them an interest over any money that their customer might receive from on-selling those goods. Because, as we know: And: the supplier s interest over those proceeds from on-sale also assumes a super priority over any other party s interests. While this is very good news for trade credit suppliers, it is not such good news for those that lend money against a business s accounts receivable book. Keeping the money flowing Accounts receivable financing, ledger financing, debtor financing and factoring are all terms for very similar arrangements. A huge proportion of a business s assets are tied up in money owed to it by its debtors. While trade credit insurance plays an important role in protecting a business against not getting paid, it doesn t directly help with enabling businesses to get paid any sooner. This is where debtor financing comes in. A debtor financier will see that Company A is owed, say, $50,000 by Company X for goods they ve sold but that they are not due to get paid for another 30 days. The financier will advance, say $40,000 to Company A, straightaway, on the understanding that the financier will take a security interest over the $50,000 due to be paid later by Company X. However, if our supplier has been supplying goods to Company A under an ROT, and that ROT has been registered as a PMSI, then our supplier already has a super priority interest over any payment Company A might receive from on-selling those goods. 16

18 As soon as the Debtor Financier realises our supplier s interest holds a super priority, their enthusiasm for financing Company A s business starts to dry up if they can t get a clean, priority security interest over monies being paid into Company A, their business model collapses and their risks go through the roof. The net result is that: Company A can t get access to cash flow financing, Our supplier s risk of delayed payments rises, and The financier has available money that it can t use. All, in all, pretty much everyone loses to one extent or another. However, the PPSA is not intended to stifle the flow of trade or trade finance and so it has a built-in accommodation that should ensure that no-one loses out. Provided the Debtor Financier gives written notice to the PMSI supplier of their intention to register a security interest over Company A s accounts, the financier is allowed to take a higher priority interest over monies that might come from the on-sale of our supplier s unpaidfor goods. In return for losing out on their priority over onsale proceeds, our PMSI supplier s security rights are, instead, extended to include an interest over funds advanced to Company A by the financier (at least, inasmuch as they apply to the on-sale of the supplier s goods). In this fashion: The supplier maintains a broadly similar security, Company A gets their cash flow problem resolved, and The Debtor Financier gets sufficient security to enable them to provide the cash. All in all, pretty much no-one loses. The Section 64 Letter The mechanism for the Financier giving written notice to the PMSI supplier is known as a Section 64 letter (after the relevant section of the PPSA) and will include either Section 64 or s64 in its header or subject line. 17

19 Upon receiving such a letter it is not uncommon for a supplier to think that a bank or finance house is usurping or hijacking their basic ROT rights. However, It is important to remember that the supplier still has the highest possible priority over the goods they supply and that it is only the proceeds element that is now being swapped over with an interest in the finance being made available by the bank or finance house. 18

20 Getting it right! It s the PPSR way or the highway! When the PPSR was first introduced we had little idea how much of a minefield it would be or how much of a pedant s playground a registration could end up being. We had an image in our minds of some impartial, wise, experienced parent figure reviewing registrations and applying a little common sense. Unfortunately, reality presented us with legally trained insolvency practitioners more intent on using the letter of the law to defeat registrations than the spirit of the law to support them. In short, while a PPSR registration doesn t require a huge amount of information, what it does require must be accurate and entirely correct. She ll be right and close enough is good enough are phrases that do not belong in any discussion regarding the PPSR in fact they shouldn t even be in the same post code when the PPSR is being mentioned! Unfortunately, this then creates more problems with the fear of making a mistake! A common problem revolves around suppliers saying that they didn t really understand the question, so, just to be on the safe side, they left it blank! Unfortunately, where the PPSR is concerned, leaving something blank is pretty much the equivalent of answering No. Is this a Purchase Money Security Interest? having left the answer to this question blank, many hundreds, if not thousands, of ROT suppliers have been left with a less effective security than they d otherwise be entitled to. Even providing information that ought to be straightforward becomes something of an ordeal under the PPSR. Against a backdrop of most trade credit suppliers keeping track of their customers by reference to their ABNs, the very first question presented by the PPSR for identifying the supplier s customer is Does the Grantor have an ARSN, ARBN or ACN?. While we hope you re already comfortable with the relevance of the ACN, how familiar are you with Australian Registered Scheme Numbers or how tempted might you be to consider an Australian Registered Body Number as pretty much the same thing as an ABN? 19

21 And what if a debtor has an ACN but is also the trustee of a Trust? Would it be common sense to lodge the registration against the ACN or against the ABN of the Trust? The Personal Property Securities Regulations 2010 takes around 6 pages to describe what should happen in such a case what chance does a trade credit supplier have of getting it right? Unfortunately, any error or omission in lodging a registration will, at best, reduce its effectiveness and, at worst (such as identifying the Grantor with the wrong type of number), render the registration completely invalid and the underlying security interest totally ineffective. It is no wonder that trade credit suppliers generally, need some help with lodging registrations. 20

22 NCI s PPSR Services It s a natural extension for us. At the root of NCI s facilities is a direct, behind the scenes, connection between us and the PPSR often referred to as a B2G or Business to Government link. This allows us a greater flexibility in processing registrations than would be available to the overwhelming majority of PPSR users. One of the main options available to us is being able to lodge registrations as a bulk upload from a spreadsheet. In this manner, thousands of registrations can be made in a matter of minutes. However, as you will have picked up from the previous chapter, lodging a registration is one thing, lodging it correctly is quite a different matter. Fortunately, for us, one of the PPSR s main problem areas, that of identifying debtors (or Grantors), plays directly into one of NCI s strengths, and, operating in tandem with our bulk upload facility, is our Debtor Wash process. The Debtor Wash NCI s Debtor Wash takes a listing of debtors from our client (usually from an aged trial balance or similar) and compares it to records held on NCI s database. Where we don t have a record on file, the Debtor Wash process will automatically source information from ASIC or the ABR and create a new record. While there is an element of name matching involved, the Debtor Wash process is most effective when we are working from a client supplied spreadsheet that includes either an ACN or ABN (or both). Suppliers may think they know who their debtors are, but, more often than not, they tend to rely on Trading Names and ABNs. NCI s Debtor Wash will, not only identify the legal entity behind the trading name and ABN, but will identify it in a manner 21

23 consistent with the PPSR s rather convoluted requirements for this reason, the Debtor Wash is an integral part of our bulk upload service. Once our client has the bulk of their customer base registered on the PPSR, they will need a facility for lodging registrations against new customers. This is where NCI s PPSR Portal enters the picture. The Portal is accessible via NCI s on-line client facility, NCINet and allows our clients to lodge registrations with the PPSR in real time. In other words, when they click the submit button, the registration will be lodged on the PPSR there and then; they are not submitting a request for NCI to lodge on their behalf, as might be the case with a credit limit application for example. Designed for trade credit suppliers The big advantage to lodging registrations via NCINet is that our processes and screens have been specifically designed with trade credit suppliers in mind. The PPSR s own registration facility needs to accommodate a wide variety of different types of security holders - high street stores that might need to put registrations in place against consumers, or police who might need to register a hoon lien or interest over proceeds of crime etc. All of which contributes to making the PPSR a more confusing place than it would otherwise need to be. By focussing on the needs of trade credit suppliers, we are able to provide a much more straightforward experience - we can also avoid using terms like Giving of Notice Identifier! Of course, no PPSR service would be complete without the facility to search, review and otherwise manage registrations, as well as discharging and amending them. We even provide an alert when a registration is due to expire. By being part of NCINet, we can also provide our clients with the opportunity to lodge registrations at the same time as they submit credit limit applications under their insurance policy or CRM facility very much a one-stop shop approach. Tying all these services together are experienced staff within NCI able to help guide clients through the registration processes and answer questions, as well as offering guidance regarding some of the trickier aspects of the PPSA although in this context it should be noted that our staff are 22

24 not lawyers and our views do not carry the weight (or liability) of expert legal opinion. Wherever there is any concern, we would always encourage our clients to seek their own professional legal advice. NCINet and NCI newsletters invariably contain updates regarding PPSA trends and interpretation as well as on-going general advice. For some, particularly important, issues, special mail outs will take place. 23

25 Glossary AFSA Address for service AllPAAP (All Present and after acquired property) Attachment Collateral Collateral Class Creditor Debtor Discharge Financing change Statement Financing Statement Grantor The Australian Financial Security Authority the Governmental body responsible for the operation of the PPSR. This will be the main contact address at the secured party (usually the supplier) for communications regarding their registration. Will usually be a designated address. A Collateral Class usually representing a General Security interest over all a business s assets. Broadly an equivalent of what used to be termed a Fixed and Floating Charge. Attachment can have a few meanings. Primarily it is when a security interest actually takes effect against specific property it is no longer a potential interest but an actual interest. Property that is subject to a security interest. Collateral is one of four key components required to register a financing statement on the Personal Property Securities Register (PPSR). A predefined description established to categorise the nature of the collateral over which a registration has been lodged, eg, Other Goods, Motor Vehicles, Watercraft, Livestock etc. A person or organisation to which a debt is owed. Otherwise known as a Secured Party. Will usually be a supplier or financier. A person or organisation that has an obligation to repay a debt. In PPSR terminology the Grantor. This is the act of releasing a registration on the PPSR and should only be undertaken when the debtor/grantor has paid all outstanding monies and there is no expectation of future trading. The information required to be authorised in order to make an alteration to any information in a financing statement registered in the PPSR. This can be used to renew, discharge or subordinate a financing statement, or change information in the financing statement itself. A formal term for a registration on the PPSR. This is the entity that is granting the security interest and will usually be the same party as the Debtor. Could also be a Guarantor. 24

26 Perfection PPSR Personal property Purchase Money Security Interest (PMSI) Registering party Registrar Reinstatement ROT (Retention of title) Secured party Perfection is a process that gives a security interest the protection and benefits of the Personal Property Securities Act (PPSA). A security interest may be perfected by: Registration Possession Control; or Force of the Act (as per transitional arrangements) Personal Property Securities Register. A publicly accessible, Government created, electronic noticeboard for registering security interests over non-real estate property. Also known as collateral, or belongings, personal property can be tangible or intangible. Excludes all forms of real property, such as buildings and land. Examples include motor vehicles, money, goods, livestock, investment securities, intellectual property, and licensing rights. Where the property being used as collateral is securing its own purchase price such as might be the case in a Retention of Title arrangement. PMSI s have priority over most other interests in the same collateral provided they are designated as such in the registration. A registered user of the PPSR who acts on behalf of a secured party to submit a financing statement or financing change statement for registration. The Government Administrator of the Personal Property Securities website appointed under the PPSA. The PPSR is currently administered by AFSA (the Australian Financial Security Authority). The PPSR Registrar may restore a registration to the Register if it has been mistakenly discharged or removed. A retention of title clause allows the supplier to retain ownership over the goods supplied until full payment for them has been made, thus providing the supplier with a form of security against the buyer s default or insolvency. In order to be at all effective, this needs to be registered on the PPSR. A person or organisation that holds one or more security interests for their own, or another s, benefit. Otherwise known as a Creditor. 25

27 Secured party Group Security agreement Security interest SPG Super priority Transitional period Verification statement Secured Party Groups are unique identifiers within the PPSR. They are essentially the creditor, lender or person taking a security interest over personal property. A Secured Party (SP) creates a Secured Party Group to represent itself on the PPSR the first time it accesses the PPSR in order to make registrations. A Secured Party Group may contain one or more Secured Parties. An agreement which creates an enforceable claim (or security interest) in a party s property so that in the event of default, the secured party can take possession of that property in order to offset the debt. An enforceable claim (or investment stake) created by a transaction that secures payment or performance of an obligation. A Security interest arises from a Security agreement. See Secured Party Group above. A security interest superior to that of other security interests a term typically used to refer to a Purchase Money Security Interest (PMSI). A transitional period for the Personal Properties Securities Act (PPSA) established in order to deem valid security interests, already in place at the time the PPSR started, as perfected without any further need for registration for a period of 2 years from Register commencement. Beyond that point continued protection under the Act requires specific registration. The transitional period ended on 31/01/2014. The information that is sent to the address for service of the registering party providing validation of the registration of a financing statement or financing change statement. 26

28 Index Collateral, 3, 4, 5, 10 Collateral Class, 2 Consignment Stock, 8, 19 Corporations Act, 13 Debtor financing, 21 Debtor Wash, 26, 27 First in time, 18 General Security Interest, 17 Giving of Notice Identifier, 2 Grantor, 5, 25 Leasing, 9, 19 NCINet, 27 On-sale, 11 Perfection, 5 Personal property, 4 PMSI, 18, 20 Preference Claims, 13 Priority, 16 Proceeds, 11, 20 Purchase Money Security Interest, 2, 18, 25 Ranking, 18 Real Estate, 4, 12 Retention of Title, 6, 7, 8, 10, 14, 19, 20 ROT, 6, 7, 14, 19 Section 64, 20, 23 secured debt, 13 Secured Party, 5 Secured Party Group, 2 Security agreement, 3, 4, 5 Security interest, 8, 14 Super priority, 20 Trust, 25 Trustee, 25 Unfair Preference, 12 Vehicle Identification Number, 11 Vesting, 7 VIN, 11 27