19 February, 2019
Initial round of 7 year registrations set to expire on 30 January 2019 – urgent action may be required
Background
The Personal Property Securities Act 2009 (Cth) (PPSA) came into force on 30 January 2012. Amongst other things, it provided for the creation of the Personal Property Securities Register (PPSR); a national online register of security interests in personal property (i.e. property other than real property) that enables secured parties to "perfect" their security interests by registration if certain steps are followed.
Certain types of security interests may only be registered for a maximum period of 7 years. In all other instances, secured parties are given the option of registering their security interests for a period of:
- 7 years (or less);
- more than 7 years and up to 25 years; or
- indefinitely;
- with a registration for 7 years or less being the cheapest option.
Imminent expiry of PPSR registrations
If a secured party has a security interest in personal property that was:
- migrated over to the PPSR upon the commencement of the PPSA on 30 January 2012 and subsequently amended to have a registration period of 7 years; or
- was registered on the PPSR on or shortly after 30 January 2012 with a registration period of
- 7 years,
- the registration for that security interest will expire on Wednesday 30 January 2019.
According to InfoTrack, there are over 120,000 registrations which will expire on 30 January 2019.
You will not be notified that any of your registrations on the PPSR are due to expire.
Why this matters
The PPSR's software automatically discharges a registration on its end date. Once a registration expires, it cannot be extended or renewed and any security interest the subject of an expired registration will be converted into an unperfected security interest unless the security interest is perfected by another registration that is not expiring or possibly perfected by another means.
As many people would be aware, an unperfected security interest is vulnerable in the following ways:
- an unperfected security interest will vest (and be unenforceable) if either the grantor is a company and enters into administration or liquidation or if the grantor is an individual and becomes bankrupt;
- a perfected security interest has priority over an unperfected security interest in the same personal property.
While you can re-register your security interest after the expiry date, it will have a new registration date (and a new priority time). As a result:
- you may not be able to now obtain the priority position that you previously held
- if the grantor is a corporation, your security interest will be vulnerable to vesting if the new registration enters into administration or liquidation within 6 months of the new registration date.
The good news is that it is possible to avoid these potentially very expensive and detrimental consequences.
However, to do so, a secured party must take steps to extend the registration period before the original registration period expires.
Next steps
We would recommend that all creditors with registrations on the PPSR immediately:
- Check the expiry date of all existing PPSR registrations. A good way to keep track of the status of registration is to request a Registration Due to Expire Report from the PPSR.
- See link for instructions from the PPSR website on how to obtain this report;
- Review and consider for each registration that is due to expire shortly whether a security interest still exists and requires renewal and if so, if all of the registration details are correct (including the grantor details, collateral description, and whether it is a PMSI or transitional security interest) . Now would be an appropriate time to rectify any incorrect data if possible and if not, consider other options for protecting the security interest. Read on below for a list of common errors made when registering security interests;
- If the security interest still exists and the registration details are correct, renew the PPSR registration to extend the expiry date to ensure that the security interests remains perfected. The fee to renew a 7 year registration for up to 7 years is $6.00 (as of 1 August 2018).
Going forward, now that the PPSR has been operational for 7 years, renewing and extending your PPSR registrations may become a more common occurrence. It is advisable to set up proper procedures to regularly monitor the expiration date of your registrations so that you are able to extend them as required. To reduce the administrative burden of this exercise, you may also consider spending more money at the outset to purchase an indefinite registration (if that option is available).
Common registration errors
As mentioned above, it is also advisable for you take this opportunity to review the registration details for your PPSR registrations to make sure that all of the registration details are correct and the registration is valid.
Unfortunately, over the past seven years we have seen many instances where registered security interests have either vested (and become unenforceable) or lost priority to other registered security interests due to errors in the registration or delays in making the registration. It is alarmingly easy to make an error.
Common errors to look out for include:
- marking a security interest as transitional, when it is not
- marking a security interest as a PMSI when it is not
- failing to mark a security interest as a PMSI when it is a PMSI
- registering PMSIs on the PPSR outside of the specific timeframes to obtain super priority
- if the grantor is a corporation, registering the security interest more than 20 business days after entering into the security agreement
- errors in the serial numbers of serial numbered goods or any intellectual property numbers
- (i.e Trademarks, copyright, design, patents, plant breeder's right and circuit layout)
- incorrectly identifying the grantor – including registering against a company's ABN not ACN and failing to register against the ABN of a trust (and instead registering against the ACN of the corporate trustee)
Read Baker McKenzie's Overview of the Personal Property Securities Act 2009 here.
For further information, please contact:
Howard Fraser, Partner, Baker & McKenzie
howard.fraser@bakermckenzie.com
