For the past financial year, the Personal Property Securities Act 2009 (PPSA) has remained a prominent feature in the risk profile faced by many small to medium enterprises throughout Australia.

These risks will be particularly prevalent for businesses where:

  • They transfer or lease “personal property”; meaning any property that is neither land or an interest in land;
  • Those transfers or leases are employed to secure repayment or performance of an obligation (such as a mortgage, hire-purchase, equipment lease, or retention of title agreement); and,
  • They have limited knowledge, awareness or procedures in place to ensure they comply with the requirements of the PPSA. This includes, specifically, an awareness of the need to “perfect” any interest in secured property through valid electronic registrations on the Personal Property Securities Register (PPSR) or perfected through other means under the PPSA.

In April, the Supreme Court of Western Australia handed down a significant decision for followers of the PPSA in White v Spiers Earthworks Pty Ltd.  This case added to the growing body of precedent in Australia starting with the NSW Maiden Civil case (1), and mirrors the approach of contemporary authorities in New Zealand and Canada such as Graham v Portacom New Zealand Ltd.

These cases underline the significance for small to medium enterprises to obtain accurate and comprehensive advice on sale of business or hire-purchase transactions, as well as being diligent in protecting these interests wherever they might arise.

Warning flags should register immediately for any business wherever any transaction or lease of personal property is involved, should that transaction be used to secure repayment or performance of a contractual obligation.

The potential risks in failing to protect your position can be significant and irreversible.  For a lessor or owner of property, finding yourself on the wrong side of the PPSA can mean losing all rights to the leased or financed asset to any competing creditor who can rely on the legal protection of the PPSA, should the lessee, purchaser or borrower, with possession of the assets, become insolvent.

This will frequently result in a double whammy effect for unsuspecting creditors.  In addition to suddenly finding your borrower unable to repay, you will also find yourself without access to the security you had counted on in using as protection in the event of their default.

The case also demonstrates the fairly bleak implications for long-term hire-purchase transactions entered into before the PPSA came into effect in January 2012, in respect of which no action has been taken to perfect either prior to or during the 2-year transitional period.

Nevertheless, some comfort may be available on the horizon.  Prior to the case being handed down in April, the Commonwealth Attorney-General announced that a review of the PPSA would be carried out.  An interim report is scheduled for release at the end of this month.  The review will focus principally on the effects of the PPSA on small businesses.  For further information on this article or to discuss the measures your business can adopt to comply with the PPSA, contact Robert Ross, director of Composite Law for advice.

1 Maiden Civil v QES[2013] NSWSC 852