Many business owners are still unaware of the benefits of PPSR registration. For a small cost and little effort, suppliers can get the benefits of ‘security’ and minimise their exposure to bad debts.
Use it or lose it – how registering on the PPSR is more important than ever
Although it’s too soon for the true fallout from the removal of the ‘safe harbour’ and JobKeeper safety nets to be known, the true purpose of the Personal Property Securities Register (PPSR) will be very clear in the coming months.
According to Equifax’s PPSR expert, Andrew McLellan, “The losses can be huge when a customer goes out of business without paying what it owes … Business owners can safeguard against this not uncommon scenario by making sure PPS registration is part of the armour they can use to guard against bad debt”.
In short, it is crucial that suppliers of goods to act now to utilise the PPSR as a means to protect against the financial loss that could potentially occur when a customer becomes insolvent.
What is the PPSR?
In general terms, the PPSR is a national online database that shows whether someone is claiming an interest in goods or assets. The PPSR can be particularly relevant for suppliers, as they can make registrations on the PPSR, which allows others to know when they retain an interest in goods they are supplying.
Of course, an agreement to this effect with the customer is needed in addition to mere PPSR registration.
Registering on the PPSR can be particularly important for suppliers when a customer becomes insolvent, as it means that the supplier will become a secured creditor, which brings enhanced rights and advantages over unsecured creditors. These includes opportunities during the liquidation process, such as:
- gaining priority over unsecured creditors;
- voting at creditors’ meetings for the amount the company owes them less the amount they are likely to receive from realisation of the secured assets (ie, their shortfall);
- asking the liquidator to deal with the secured assets for them and account to them for the proceeds and costs of collecting and selling those assets; and
- immunity from preference claims.
It is a common misconception that if a supplier retains ownership in an asset (eg, via a retention of title or ‘ROT’ clause), the asset is theirs to keep. However, if the supplier hasn’t registered on the PPSR, they have little protection over the asset should the customer become insolvent.
Accordingly, registering on the PPSR should be viewed as a valuable insurance policy. It is noted, however, that economists are not expecting a huge surge of insolvencies following the ending of the JobKeeper stimulus, but rather, a slow ramping up of cases.
As such, it is particularly important that suppliers use the PPSR to protect themselves against ‘zombie’ customers, namely, businesses that are seemingly alive but actually dead, as their insolvency may not become apparent until the full fallout from the ending of JobKeeper truly hits.
Once a PPSR registration is allowed to expire, it cannot be extended, renewed or recovered.
Unless it is specified differently when making a registration, the default PPSR registration period is 7 years. Accordingly, it is extremely important to track registrations, or else an otherwise secured creditor may unknowingly become unsecured, losing all of the added rights and opportunities along with their registration.