Businesses warned to register interests by January 31 or risk losing them in case of business liquidation

In less than two weeks, the transition period of the Personal Property Securities Register will end, meaning businesses with pre-existing relationships with customers from before the introduction of the register in January 2012 are now required to register all security interests.

Failure to do so can result in such interests becoming available to all unsecured creditors in the event of business liquidation.

The federal PPSR commenced in January 2012 to replace 70 different registers of security interests. Businesses with pre-existing business relationships with other businesses have been able to claim exemption from having to register as part of a transitional ‘grace’ period. This period will expire on January 31.

“It’s been PPSA-lite for the past two years,” says liquidator Cliff Sanderson of Dissolve. “At the end of this month, it’s fully operational. That means there are no provisions to get you out of jail free.”

Experts have called on businesses to register their assets, with PPSA Protection’s Rick Nash saying failure to do so is no legal excuse.

“It’s fundamentally not a bad piece of legislation,” he says about the controversial register. “But it has been implemented with almost no education or information provided out of statutory bodies to the business community. And if you don’t know about it, you can only be a victim.”

Some businesses have already fallen foul of failing to register.

For example, in 2010, Queensland Excavation Services purchased a wheel loader and two excavators using third-party finance. It then leased that equipment to Maiden Civil, which used the equipment in civil construction work in the Northern Territory. Maiden made periodic repayments to QES.

In 2012, Maiden borrowed money from Fast Financial Solutions, granting Fast a security interest over all its assets and equipment. Four months later, Fast appointed receivers to Maiden, who claimed possession of the equipment Maiden was leasing from QES.

QES had never registered its interest in the equipment, and so was not granted one when the case went to the High Court. A failure to put the lease in writing meant it could not show the arrangement had been in place before 2012, and so it wasn’t able to take advantage of the grace period.

“The basic purpose of the register was that creditors could have a security interest,” Sanderson says.

“So when a company goes belly-up, they’re protected.

“It’s a nice theory. But in all insolvencies, the pie is smaller than everybody wants. And when you divide it up, someone wins and someone loses.”

The loser, Nash says, is the business that hasn’t registered its assets. He fears more cases like what happened to QES and says, in New Zealand, where a register was introduced more than 10 years ago, such cases continue to pop up because businesses are not sufficiently aware of the need to register their interests, and so are treated as unsecured creditors if a business is liquidated.   

“But the horse has bolted. It’s a done deal,” he says.

“So we just have to educate the business community now.”

“Businesses need to create PPSA compliant terms of trade, and register their interests on the register. If they do those two things, they can get all the benefits.”