Having performed over a thousand PPS Assurance Reviews for our clients, we’ve seen just about every PPS registration error that can be made. In fact, over 95% of the reviews we’ve performed have uncovered some level of administrative errors.
Finding out your PPS registration fails to comply with the rigid requirements of the PPSA can be an expensive experience. A rejection of your claim will see you relegated to the ranks of an unsecured creditor, and we know what that means – little, if any, debt recovery.
If you’re still using the Government’s PPSR registration platform, you’ll be aware of its complexity. The former Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, recently released her research citing the need for a major overhaul of the PPSR process. It’s certainly not just the fault of the Government’s PPS Registry portal. The PPSA is a tough piece of legislation using a language that is foreign to many.
Knowing the common registration errors will help you understand how best to register a security interest on the PPSR. The following guide is just that, a guide, and will assist your understanding of the process when performing PPSR registrations.
What to consider when registering on the PPSR
So, how hard can it be? Well, it turns out there are at least 11 variables involved in each registration. Keep reading, we’ll explain all 11 variables and how they relate to your security interest.
Secured Party Group
Have you included the Trust and Trustee if you’re a trading trust? For example, if a service provider performing PPSR registrations for their client uses their own name as the secured party group and their client’s names as the grantors, all their registrations will be invalid.
Make sure you select the appropriate collateral class. There are 28 of them but only a handful are used regularly. We often see motor vehicles incorrectly registered as Other Goods with their serial numbers recorded in the Collateral Description.
Have you selected the correct collateral type? Consumer registrations are of no help if you have a commercial relationship with your customer.
How’s your collateral description? The broader the better, with at least some reference to the nature of your collateral. Whilst a collateral description is not necessarily mandatory, it makes a lot of sense to provide a description. Just make sure it’s correct and broad enough to cover any future changes in the nature of the goods you supply.
Purchase Money Security Interest (PMSI)
Is your security a Purchase Money Security Interest? Failing to elect PMSI is one of the most common registration errors. This can undermine the effectiveness of your registration and potentially render it useless. In rare circumstances, a Secured Party won’t have PMSI, however, the vast majority do. This is a critical election and care is required.
Will your goods/equipment be treated by your customer as inventory? Essentially, if your customer consumes, on-sells or on-hires your goods or equipment, they will treat it as inventory. Most of the businesses we speak with have no idea what this question means.
Are you going to claim proceeds? It is a default election in the PPSR Financing Statement, so changing this election makes little sense and amending the standard proceeds description reduces its effectiveness.
If you haven’t subordinated your security, why elect subordinated? Don’t give insolvency practitioners any opening to argue the validity of your registration.
The same goes for the control election, if you don’t control your collateral (it’s unlikely you will), don’t make the election.
It is common to find old Transitional registrations still being relied upon to protect security. Transitional registrations are only appropriate where your current security agreement with your Grantor (for example, your signed terms of trade) existed at 30 January 2012 (the commencement of the PPSA). If you’ve reissued or amended your terms of trade since February 2012 (which is highly likely), a transitional PPS registration is unlikely to be appropriate.
Identifying your customer is critical but doing so in accordance with the PPSA and its regulations is not so easy. Grantor identification errors are very common and will invalidate a PPSR registration.
Identifying a grantor by its ABN is still a common issue and is invalid if the grantor also has an ACN. Identifying a sole trader by its ABN is also an issue as they must be registered by their full name and date of birth.
There’s little point in only registering against the trustee if the grantor is a trust. The failure to adequately identify the grantor is also an indicator that users of the PPSR are not aware of the court’s decisions on many of these matters.
It’s clear that human error is the biggest contributor to registration mistakes, particularly when using the Government’s PPSR register. Having to perform repetitive registrations, answering the same questions over and over and going through page after page of the Financing Statement is a recipe for error.
In our experience, there is simply not enough support provided to those tasked with performing the PPSR registrations. The majority do not have sufficient training, support or knowledge to adequately carry out their role, yet they will be the ones in the ‘firing line’ if a PPSR registration fails.
If you want to ensure your registrations are compliant with the PPSA, seek the advice of a specialist, undertake an Assurance Review and use alternative PPSR registration software.
Managing over 400 Secured Party Groups has taught us a lot, particularly the benefit of PPSR registration and data management software. Our recent move to PPSR Cloud has been a great success.
PPSR Cloud software is available to anyone and allows you to perform registrations, amendments, renewals and searches. It’s simple, safe and accurate.
The information provided in this article is general in nature. PPSR Cloud are not lawyers and this is not legal advice. If you have missed the timing of your registrations, you should obtain legal advice on how to address the issue. Our suggestions should be treated as suggestions only and you will need to seek specific advice for your circumstances.