30/04/2012

With the Personal Property Securities Act 2010 (PPSA) which came into force on 30 January 2012, business needs to ensure they comply with the PPSA so they can maximise any priority they may have in securities they take over personal property.

Business also needs to ensure they are not agreeing to provisions under the PPSA which could cause future potential problems.

Complying with the PPSA can be challenging. Let’s discuss a recent situation faced by a client.

Our client was asked to sign a credit application to open a commercial credit account. This required details of the client, its credit record, directors, trade referees and the like. Included in a brief set of terms and conditions was a provision which required our client to acknowledge that the agreement was a security interest under the PPSA and to allow the supplier to "register any security interest on any register" which would include the Personal Property Securities Register (PPSR) under the PPSA.

Under section 12(1) of the PPSA, a security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation.

In our view, an application for credit does NOT, in itself, secure the payment of money or the performance of an obligation. In the case of our client, the agreement is NOT a security interest under the PPSA and we advised our client NOT to agree to the provision quoted above.

If, under the provisions of the credit application, our client was required to charge its personal property to secure repayment of the moneys owed for goods supplied, that is a different story. That would be a security interest under the PPSA and a provision allowing the supplier to register its security interest on the PPSR would be fair and reasonable.

The lesson from this case is clear- suppliers and others may, deliberately or through genuine lack of knowledge, ask you to agree to all sorts of provisions under the PPSA which they may have no right to do. Certainly, if you have no written agreement with another business but you wish to trade with them, be very careful about signing anything which allows them to register a security interest in relation to your business on the PPSR unless and until you have had it checked out.  

To do so may cause your business real problems down the track. It may be difficult to argue that you didn’t know what this was all about if you have specifically agreed to allow another business to register a security interest in your business on the PPSR.

If you have any questions in relation to this article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.