PPSA: An Introduction - NCI · Why does everything have to be so complicated? We want you to...

PPSA: An Introduction

Client Information

Services

National Credit Insurance

(Brokers) Pty Ltd


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National Credit Insurance (Brokers) Pty Ltd

165 Grenfell Street

Adelaide SA 5000

Phone 1800 882 820 • Email [email protected]

NCI is delighted to provide our clients and partners with general advice on the PPSA legislation. This is

relatively young legislation and various parties can still argue as to why PPSR registrations might not be

effective, so little of which has resulted in helpful legal precedent. We would strongly advocate our

clients’ seeking their own professional legal advice in such matters.


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Table of Contents Why does everything have to be so complicated? ........................................................ 3

The tyranny of jargon .......................................................................................................... 3

Thinking in terms of ‘Security’ ............................................................................................. 4

The 4 key components ........................................................................................................ 5

The Retention of Title Clause .............................................................................................. 6

Imagine two suppliers ......................................................................................................... 6

Other common security interests ...................................................................................... 8

Consignment Stock ............................................................................................................. 8

Leasing .................................................................................................................................. 8

More than just theory! ......................................................................................................... 8

Benefits of Registration ..................................................................................................... 10

Proceeds ............................................................................................................................. 10

Enjoying a continuing interest .......................................................................................... 10

Unfair Preference Claims .................................................................................................. 12

Secured Creditor status .................................................................................................... 12

Establishing priority ........................................................................................................... 14

“Purchase Money Security Interest” ................................................................................ 15

Priority & Section 64 .......................................................................................................... 16

Keeping the money flowing ............................................................................................. 16

The Section 64 Letter ......................................................................................................... 17

Getting it right! .................................................................................................................. 19

NCI’s PPSR Services ........................................................................................................... 21

The Debtor Wash ................................................................................................................ 21

Designed for trade credit suppliers ................................................................................. 22

Glossary ............................................................................................................................. 24

Index .................................................................................................................................. 27


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Why does everything have to be so complicated? We want you to understand that we feel your pain!

The Personal Property Securities Act (or PPSA) is 300 pages of Australian legislation

passed at the end of 2009 and coming into force on 30th January 2012.

When the PPSA was introduced, New Zealand had already had the best part of 10

years of their own PPSA legislation under their belt - although it is worth noting that

New Zealand’s version of the Act only runs to just under 140 pages.

You might be forgiven for thinking that, being over twice as long, the Australian PPSA

would perhaps be more specific or clearer in detailing how the Act should work –

perhaps a more refined piece of legislation?

However, our PPSA’s 300 pages is positively dwarfed by the 530 page official review

of the Act containing nearly 400 recommendations for its improvement!

So, long story short, the Australian PPSA is over long, over complex and goes over

most peoples’ heads!

Why are we starting our introduction in this negative tone?

Make no mistake, the PPSA is incredibly important to trade credit suppliers, and

we’re going to keep emphasising this throughout the guide, but there is no hiding

the fact that it is also incredibly complicated, and if you haven’t picked up

everything straightaway, it is most definitely not your fault!

The tyranny of jargon PPSA jargon such as Secured Party Group, Giving of Notice Identifier, Collateral

Class, and, the dreaded, Purchase Money Security Interest will be daunting but, if

you persevere and work your way through this guide, you may well find that the

PPSA is something that can work for you rather than just being something that

administrators and liquidators will repeatedly

use against you.

What follows should lead to you building a

confident understanding in the basic

workings of the PPSA and give you a solid

foundation to cope with any number of

weird and wonderful situations that might

get thrown at you.


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Thinking in terms of ‘Security’ A different perspective on trading arrangements

In trade credit we think in terms of debt and money owed, and this tends to colour

our whole outlook on our usual trading arrangements – we often refer to our

customers, for example, as “Debtors”. This is why we sometimes find the PPSA’s

approach so difficult to understand.

The PPSA is not interested in amounts owing, it is not even interested in underlying

supply obligations. It is only interested in circumstances where some form of

property is being used as collateral under a security agreement.

Unfortunately, we are not used to thinking in terms of Collateral and Security

Agreements.

However, outside of our business lives, one of the biggest financial commitments we

make is when we get our first home.

We borrow money from a bank in order to

buy a house and the bank takes a security

interest over the house to protect itself from

us failing to make the agreed loan

repayments. In this scenario the house is

the Collateral and the clause in our loan

contract that allows the bank to take

possession of our house is the Security

Agreement.

While a home mortgage might provide a good example for introducing the idea of

collateral, in this case the collateral is Real Estate (real estate being land or buildings

attached to land) and the PPSA doesn’t apply to real estate property.

The PPSA concerns itself with Personal

property securities and, in this context,

personal property is, any property that

doesn’t count as real estate – whether that

property is a bar of chocolate, a diesel

generator, or something less tangible, like a

licence to use a registered brand name for

instance.

Perhaps a better example might be where you borrow money from your bank in

order to buy a car and the bank includes a clause in the loan agreement giving

them the right to take possession of your

car in the event you don’t repay the loan.

In fact, security interests over cars account

for a little over half of all the registrations on

the PPSR and well over half of all searches.


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The 4 key components In PPSA terms, the Collateral and the Security agreement are two of the four key

components – the other two being the body ‘granting’ the security right over the

collateral (the Grantor) and the entity benefiting from that security right, the one

that gets to take possession of the property if the underlying loan or sale collapses

(the Secured Party). In a trade credit context the Grantor will usually be the debtor

and the Secured Party will be the supplier.

Without those four components you cannot lodge a PPSR registration and without a

PPSR registration those security arrangements will not be effective should an

administrator, receiver, liquidator or

bankruptcy trustee be appointed.

A registration on the PPSR acts as a wax

seal ‘authorising’ the security arrangement

– in PPSA terminology, a registration

‘perfects’ the security arrangement, and an

unperfected security arrangement will not

be effective.


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The Retention of Title Clause Making sure what’s yours stays yours

Taking a security interest is not just the preserve of those lending money, trade credit

suppliers will also take security over the goods they are selling.

The most common form of security for those selling goods on credit will be the

Retention of Title clause.

At its simplest, a Retention of Title clause need be nothing more than a single

sentence to the effect that, the goods being sold remain the seller’s property until

they’ve been fully paid for. In fact, a relatively common version of a Retention of

Title clause reads as follows:

“Title to the goods shall remain with the seller and not pass to the buyer until the

purchase price for the goods has been paid in full and received by the seller.”

Unfortunately, anything that looks simple probably won’t last too long once lawyers

get hold of it, so there’ll often be additional provisions allowing for on-sale of the

goods, stipulations as to who shall be responsible for loss or damage, what rights the

supplier might have to enter the buyer’s premises to repossess the goods etc.

But, whether it’s a single sentence or a whole paragraph, the Retention of Title

clause (or ROT) is a security interest as far as the PPSA is concerned. And, as with all

security interests over non-Real Estate property, it must be registered on the PPSR if it

is to be at all effective.

Imagine two suppliers Imagine two suppliers, each with their own Retention of Title clause:

The first has an ROT written by a legal genius covering

every conceivable eventuality;

The other has a single sentence hand-written on the back

of a beer mat.

Both have been accepted by the buyer.

If the beer mat version is the only one to have been registered on the PPSR then that

will be the only ROT that has any chance of success in the event that the buyer goes

into administration.

And, under the rules of the PPSA, any security interest that hasn’t been properly

registered on the PPSA will ‘vest’ with the buyer in the event that buyer goes into

administration or liquidation.

“Vesting” isn’t a particularly familiar term to many of us, but, in this context, it

basically means that, even though you might have a contract or written agreement


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clearly stating that certain property is owned by you, you will lose that property to

the liquidator if it is the subject of an unregistered security interest.

This is such an important point that we’re going to say it again.

A security interest that is not registered on the PPSR will be ignored by Insolvency

Practitioners and any collateral or property subject to that security interest will simply

be taken by the administrator or liquidator to do with as they will.


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Other common security interests It’s not always intuitive

While ‘technically’ there may be a case for treating a Retention of Title clause as

simply a statement of ownership rather than as a security interest, I think we’d

probably all concede that the way it’s commonly used is consistent with it being a

form of security – it is, after all, a way to place pressure on a buyer to make

payment.

And, in any event, to avoid misunderstandings, the PPSA specifically lists Retention of

Title arrangements as security interests under the Act.

What might be a little harder to get one’s head around is that Consignment Stock

arrangements and long-term Leases are also specified in the PPSA as being security

interests.

Consignment Stock A Consignment Stock arrangement is one where a business will hold a supplier’s

stock on the understanding that they will attempt to on-sell it. When an item from

that stock is on-sold the business will then be deemed to have formally purchased

that item and pay the supplier accordingly. The business is effectively holding the

supplier’s stock on a sale or return basis.

Although this sort of arrangement isn’t one that would intuitively be considered a

security arrangement, that is exactly how it is treated under the PPSA.

Thus, if a supplier has a Consignment Stock agreement in place with one of their

customers and that customer goes bust, a liquidator would be able to seize and

refuse to return any of the goods owned by the supplier that their customer had

been holding UNLESS the supplier had registered their Consignment Stock

agreement on the PPSR.

If treating a Consignment Stock arrangement as a security interest seems a little

counter-intuitive, the concept of security is stretched even further by the PPSA also

deciding to treat long-term leasing arrangements as a form of security.

Leasing Under the legislation, if a lease allows for a hire period of 24 months or longer, it

should be registered on the PPSR. If it is not registered and the business taking the

equipment on hire has a liquidator appointed, not only will the hire company have

lost any unpaid hire fees, they will also lose the equipment they hired out!

More than just theory! These are not hypothetical projections as to how the Act might work; there are

plenty of real-life cases demonstrating that this is how the Act does work.

In 2012, Jackson’s Rare Guitars in Camperdown had administrators appointed and

$850,000 worth of guitars being held on consignment was seized.


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In 2015, with the collapse of the Forge Group in WA, KordaMentha, as receivers,

seized $50 million worth of turbines being leased from the American company, APR

Energy. Court action by APR Energy failed to curtail the receivers’ rights to the

turbines and $50 million of equipment was lost because APR Energy failed to lodge a

couple of $10 registrations on the PPSR.


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Benefits of Registration It’s not all sticks, there are some carrots too

If the serious implications of not registering on the PPSR were

not incentive enough, there are also a number of additional

benefits that come from lodging a registration.

For suppliers with a Retention of Title clause, their collateral is

represented by the goods they have supplied; however,

what happens when those goods are on-sold before they’ve

been paid for?

Proceeds Under the PPSA, the supplier’s security rights can extend

beyond the physical goods they supplied and apply to any

proceeds their customer may receive from their on-sale. This

would also apply to suppliers selling goods under

Consignment Stock arrangements.

In practice pursuing proceeds can be a messy and often fruitless endeavour but

there can be quite a bit of success where on-sale monies are received after the

appointment of an administrator, receiver or liquidator.

Enjoying a continuing interest One, often overlooked, benefit of a PPSR registration was almost entirely

unanticipated at the outset and probably owes much to the complicated nature of

the PPSA and the widespread uncertainty there still is concerning its scope.

When buying a motor car, the prospective

purchaser is strongly advised to conduct a

search on the PPSR against the car’s VIN

number (its Vehicle Identification Number) to

ensure that when they drive away with it some

finance company or other interested party isn’t

going to chase them down and claim superior

rights to the car because they have a

registered security interest over it.

This legitimate anxiety over getting ‘clean’, unencumbered ownership over a car

also spreads, often less legitimately, to other purchases.

Trade credit suppliers can sometimes find

themselves approached to remove a

registration over one of their customers

because its presence is considered to be

hindering the customer’s sale of some real

estate property or other business asset.


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While the PPSA, as we know, doesn’t apply to real estate property and the supplier

may have no legitimate security interest in any of the other business assets of their

customer, the supplier may, nevertheless, find themselves in the position of having

some unexpected leverage in getting an outstanding account balance brought up

to date.

Needless to say, a PPSR registration should never lightly be surrendered or

discharged while there are still outstanding monies on the account.

However, one of the biggest benefits of a PPSR registration (aside from ensuring a

security arrangement is not dismissed out of hand) comes in the opportunity it

presents to mount a defence against an Unfair Preference claim.


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Unfair Preference Claims

A new line of defence

In order to properly look at a PPSR registration’s role in defending against Preference

Claims, we need to first look at what a Preference Claim is and

what it involves.

Under the Corporations Act, a liquidator, when appointed to an

insolvent company, starts their work with the presumption that the

company had been in financial difficulty for some time before

their appointment – conceivably, they may have already been

technically insolvent.

One of their first actions will be to look at all the payments the

company made during the previous six months and write to the

recipients asking for the money to be returned. The idea being that those ‘lucky’

creditors that were paid had been given unfairly preferential treatment when

compared with other creditors that had not been paid. The Corporations Act

makes it quite clear that all creditors should be treated equally with none benefitting

to the disadvantage of others.

This right by liquidators to recover such payments is a huge cause for distress for

credit managers, particularly because it is most likely to penalise those who have

been most efficient and effective in collecting overdue accounts.

However, there are a few defences open to creditors against a liquidator’s

preference claim, the main one being that the payment in question was made

against a secured debt.

Secured Creditor status Prior to the PPSA’s introduction, a Retention of Title right was not considered to be a

security interest, but, now that it is specifically recognised as such, creditors that

have registered their ROT on the PPSR, have the opportunity to argue that they were

secured creditors and thus entitled to retain any alleged preferential payments they

received.

Unfortunately, the mere existence of an ROT clause, and the PPSR registration

perfecting it, will not be sufficient on its own to defeat the liquidator’s claim. The

creditor will need to demonstrate that, at the time they received the disputed

payment, the value of their security was sufficient to cover the value of the payment

received.

This is an important consideration and understanding how this works is an important

step in understanding how ROT rights work under the PPSA.

If our supplier delivers $30,000 worth of stock on 30 days credit, he will be owed

$30,000, and, on day one, his ROT security interest will be worth $30,000.

However, if, after a week, the buyer has on-sold $5,000 worth of that stock then the

supplier will still be owed $30,000 but the value of his security (his right to recover his

unpaid for goods) has reduced to $25,000.


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By the time the 30 day credit period is up, the buyer may have used up or on-sold all

but, say, $5,000 of the stock that had been supplied and, although the supplier will

still be owed $30,000, the value of their security will only be $5,000.

Thus, at that point in time the supplier is a secured creditor for $5,000 and an

unsecured creditor for $25,000.

Day O/S Debt Stock on-sold Stock Held %age Secured

1 $30,000 $0 $30,000 100%

7 $30,000 $5,000 $25,000 83%

14 $30,000 $7,000 $18,000 60%

21 $30,000 $5,000 $13,000 43%

30 $30,000 $8,000 $5,000 17%

So, although the existence of a PPSR registration may provide an opportunity to raise

a defence against a liquidator’s preference claim (one that wouldn’t have existed

pre-PPSA), the strength of that defence will have more to do with the value the

supplier had in their security interest at the time payment was made than how much

their security had been worth at the outset.


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Establishing priority Who wins between competing security interests?

Hopefully, by now we’ve made it sufficiently clear that registration of a security

interest on the PPSR is necessary in order to ensure its effectiveness. However,

registration on the PPSR also serves another purpose – that of determining the

relative priority, or ranking, of security interests; which security interest should take

precedence over another.

Let’s imagine a scenario where Widgets P/L is

looking to obtain finance to refurbish its

factory.

First, Widgets obtains a loan from ABC Bank

to repair cracked walls and flooring and to

give the whole factory a new lick of paint.

As security for their loan, ABC Bank takes a

general security interest over all the property

of Widgets P/L.

While the loan documentation is completed promptly and the money handed over,

it takes another two weeks for ABC Bank to record their security interest on the PPSR.

In the meantime Widgets decide they also want to add a new tea room to their

factory and obtain a loan for this from DEF Bank. Just like ABC Bank, DEF Bank takes

a general security interest over all the property of Widgets P/L as security for their

loan. Unlike ABC Bank, however, DEF Bank records their interest on the PPSR

straightaway.

Widgets P/L now has two loans, from two different banks, each with a security

interest over all Widgets P/L’s property. ABC Bank provided the first loan but DEF

Bank lodged the first registration.

Later that year, the economy takes a downturn; Widgets P/L has lost a major

customer and is unable to pay its debts as they fall due. A Liquidator is eventually

appointed.

It quickly becomes clear that there is not

enough available money to repay both of

the bank loans, but there is enough to repay

one of them.

The Liquidator needs to decide which bank’s

security interest has the higher ranking – ABC

Bank who provided the earlier of the two

loans, or DEF Bank whose loan came later but lodged an earlier PPSR registration?

The Liquidator will give the priority to DEF Bank because their earlier registration gives

them the higher ranking.


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But what if both banks had happened to have lodged their registrations on the

same day?

The ‘first in time’ principle will still apply and the Liquidator will be able to see, not

only to the day, hour, and minute a registration was lodged, they will also be able to

see to the nearest second, when it was lodged!

When it comes to PPSR registrations, timing is hugely important.

However, there is one type of security interest that can leap-frog the priority queue.

This type of security interest is given a ‘super-priority’ and is known as the…

“Purchase Money Security Interest”

Yes, we know, a bit of an anti-climax and quite a mouthful to boot.

The Purchase Money Security Interest is abbreviated to PMSI and, when spoken

aloud, is pronounced as ‘Pimsy’.

A PMSI is a security interest where:

“the collateral secures its own purchase price”.

While this may not be the most familiar way of looking at it for most of us, what is

being defined here almost perfectly describes a Retention of Title arrangement!

Under an ROT the goods being supplied are used as collateral against those very

same goods not being paid for. Whether you want to commit the PMSI definition to

memory or not, it should be enough to remember that:

In fact, not only will an ROT arrangement be a PMSI, but Consignment Stock

arrangements and Leasing/Hire agreements will also be treated as PMSIs.

This is excellent news for trade credit suppliers.

Not only will registration on the PPSR ensure the effectiveness of their ROT, it will also

give that ROT a super-priority that will rank higher than any Bank’s general security

interest, no matter how much earlier those interests may have been registered.

So while it may seem as though a security interest over ‘everything’ will be pretty

powerful, ‘everything’ in this context just means everything that happens to be left

after ROT suppliers have taken their unpaid for goods back.


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Priority & Section 64 Testing the limits of the PMSI super-priority

We’re going to keep looking at Retention of Title arrangements, PMSIs, and questions

of priority a little longer because this is particularly relevant to something that is both

very common and very confusing for trade credit suppliers – the Section 64 letter.

We mentioned earlier, that one of the additional benefits from registering an ROT on

the PPSR was that it extended the supplier’s rights beyond merely their ability to

recover goods they supply; it also gave them an interest over any money that their

customer might receive from on-selling those goods.

Because, as we know:

And:

the supplier’s interest over those proceeds from on-sale also assumes a super priority

over any other party’s interests.

While this is very good news for trade credit suppliers, it is not such good news for

those that lend money against a business’s accounts receivable book.

Keeping the money flowing Accounts receivable financing, ledger financing, debtor financing and factoring

are all terms for very similar arrangements.

A huge proportion of a business’s assets are tied up in money owed to it by its

debtors. While trade credit insurance plays an important role in protecting a

business against not getting paid, it doesn’t directly help with enabling businesses to

get paid any sooner.

This is where debtor financing comes in.

A debtor financier will see that Company A is owed, say, $50,000 by Company X for

goods they’ve sold but that they are not due to get paid for another 30 days. The

financier will advance, say $40,000 to Company A, straightaway, on the

understanding that the financier will take a security interest over the $50,000 due to

be paid later by Company X.

However, if our supplier has been supplying goods to Company A under an ROT,

and that ROT has been registered as a PMSI, then our supplier already has a super

priority interest over any payment Company A might receive from on-selling those

goods.


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As soon as the Debtor Financier realises our supplier’s interest holds a super priority,

their enthusiasm for financing Company A’s business starts to dry up – if they can’t

get a clean, priority security interest over monies being paid into Company A, their

business model collapses and their risks go through the roof.

The net result is that:

• Company A can’t get access to cash flow financing,

• Our supplier’s risk of delayed payments rises, and

• The financier has available money that it can’t use.

All, in all, pretty much everyone loses to one extent or another.

However, the PPSA is not intended to stifle the flow of trade or trade finance and so

it has a built-in accommodation that should ensure that no-one loses out.

Provided the Debtor Financier gives written

notice to the PMSI supplier of their intention to

register a security interest over Company A’s

accounts, the financier is allowed to take a

higher priority interest over monies that might

come from the on-sale of our supplier’s unpaid-

for goods.

In return for losing out on their priority over on-

sale proceeds, our PMSI supplier’s security rights

are, instead, extended to include an interest

over funds advanced to Company A by the

financier (at least, inasmuch as they apply to the

on-sale of the supplier’s goods).

In this fashion:

• The supplier maintains a broadly similar security,

• Company A gets their cash flow problem resolved, and

• The Debtor Financier gets sufficient security to enable them to provide the

cash.

All in all, pretty much no-one loses.

The Section 64 Letter The mechanism for the Financier giving written

notice to the PMSI supplier is known as a Section

64 letter (after the relevant section of the PPSA)

and will include either “Section 64” or “s64” in its

header or subject line.


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Upon receiving such a letter it is not uncommon for a supplier to think that a bank or

finance house is usurping or hijacking their basic ROT rights.

However, It is important to remember that the supplier still has the highest possible

priority over the goods they supply and that it is only the proceeds element that is

now being ‘swapped over’ with an interest in the finance being made available by

the bank or finance house.


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Getting it right! It’s the PPSR way or the highway!

When the PPSR was first introduced we had little idea how much of a minefield it

would be or how much of a pedant’s playground a registration could end up being.

We had an image in our minds of some impartial, wise, experienced parent figure

reviewing registrations and applying a little common sense.

Unfortunately, reality presented us with legally trained insolvency practitioners more

intent on using the letter of the law to defeat registrations than the spirit of the law to

support them.

In short, while a PPSR registration doesn’t require a huge amount of information,

what it does require must be accurate and entirely correct.

“She’ll be right” and “close enough is

good enough” are phrases that do

not belong in any discussion

regarding the PPSR – in fact they

shouldn’t even be in the same post

code when the PPSR is being

mentioned!

Unfortunately, this then creates more

problems with the fear of making a

mistake!

A common problem revolves around suppliers saying that they didn’t really

understand the question, so, just to be on the safe side, they left it blank!

Unfortunately, where the PPSR is concerned, leaving something blank is pretty much

the equivalent of answering ‘No’.

“Is this a Purchase Money Security Interest?” – having left the answer to this question

blank, many hundreds, if not thousands, of ROT suppliers have been left with a less

effective security than they’d otherwise be entitled to.

Even providing information that ought to be straightforward becomes something of

an ordeal under the PPSR.

Against a backdrop of most trade credit suppliers keeping track of their customers

by reference to their ABNs, the very first question presented by the PPSR for

identifying the supplier’s customer is “Does the Grantor have an ARSN, ARBN or

ACN?”.

While we hope you’re already comfortable with the relevance of the ACN, how

familiar are you with Australian Registered Scheme Numbers or how tempted might

you be to consider an Australian Registered Body Number as pretty much the same

thing as an ABN?


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And what if a debtor has an ACN

but is also the trustee of a Trust?

Would it be common sense to

lodge the registration against the

ACN or against the ABN of the

Trust?

The Personal Property Securities

Regulations 2010 takes around 6

pages to describe what should

happen in such a case – what

chance does a trade credit

supplier have of getting it right?

Unfortunately, any error or omission in lodging a registration will, at best, reduce its

effectiveness and, at worst (such as identifying the Grantor with the wrong type of

number), render the registration completely invalid and the underlying security

interest totally ineffective.

It is no wonder that trade credit suppliers generally, need some help with lodging

registrations.


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NCI’s PPSR Services It’s a natural extension for us.

At the root of NCI’s facilities is a direct, behind the scenes, connection between us

and the PPSR – often referred to as a B2G or Business to Government link. This allows

us a greater flexibility in processing registrations than would be available to the

overwhelming majority of PPSR users.

One of the main options available to us is being able to lodge registrations as a bulk

upload from a spreadsheet. In this manner, thousands of registrations can be made

in a matter of minutes.

However, as you will have picked up from the previous chapter, lodging a

registration is one thing, lodging it correctly is quite a different matter.

Fortunately, for us, one of the PPSR’s main problem areas, that of identifying debtors

(or Grantors), plays directly into one of NCI’s strengths, and, operating in tandem

with our bulk upload facility, is our Debtor Wash process.

The Debtor Wash NCI’s Debtor Wash takes a listing of debtors from our client (usually from an aged

trial balance or similar) and compares it to records held on NCI’s database. Where

we don’t have a record on file, the Debtor Wash process will automatically source

information from ASIC or the ABR and create a new record.

While there is an element of name matching involved, the Debtor Wash process is

most effective when we are working from a client supplied spreadsheet that

includes either an ACN or ABN (or both).

Suppliers may think they know who their debtors are, but, more often than not, they

tend to rely on Trading Names and ABNs. NCI’s Debtor Wash will, not only identify

the legal entity behind the trading name and ABN, but will identify it in a manner


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consistent with the PPSR’s rather convoluted requirements – for this reason, the

Debtor Wash is an integral part of our bulk upload service.

Once our client has the bulk of their

customer base registered on the PPSR,

they will need a facility for lodging

registrations against new customers.

This is where NCI’s PPSR Portal enters

the picture.

The Portal is accessible via NCI’s on-line client facility, NCINet and allows our clients

to lodge registrations with the PPSR in real time. In other words, when they click the

‘submit’ button, the registration will be lodged on the PPSR there and then; they are

not submitting a request for NCI to lodge on their behalf, as might be the case with

a credit limit application for example.

Designed for trade credit suppliers The big advantage to lodging registrations via NCINet is that our processes and

screens have been specifically designed

with trade credit suppliers in mind.

The PPSR’s own registration facility needs to

accommodate a wide variety of different

types of security holders - high street stores

that might need to put registrations in place

against consumers, or police who might

need to register a ‘hoon’ lien or interest

over ‘proceeds of crime’ etc.

All of which contributes to making the PPSR a more confusing place than it would

otherwise need to be. By focussing on the needs of trade credit suppliers, we are

able to provide a much more straightforward experience - we can also avoid using

terms like Giving of Notice Identifier!

Of course, no PPSR service would be complete without the facility to search, review

and otherwise manage registrations, as well as discharging and amending them.

We even provide an alert when a registration is due to expire.

By being part of NCINet, we can also provide our clients with the opportunity to

lodge registrations at the same time as they submit credit limit applications under

their insurance policy or CRM facility – very

much a one-stop shop approach.

Tying all these services together are

experienced staff within NCI able to help

guide clients through the registration

processes and answer questions, as well as

offering guidance regarding some of the

trickier aspects of the PPSA – although in this

context it should be noted that our staff are


23

not lawyers and our views do not carry the weight (or liability) of expert legal

opinion.

Wherever there is any concern, we would always encourage our clients to seek their

own professional legal advice.

NCINet and NCI newsletters invariably contain updates regarding PPSA trends and

interpretation as well as on-going general advice. For some, particularly important,

issues, special mail outs will take place.


24

Glossary

AFSA The Australian Financial Security Authority – the Governmental

body responsible for the operation of the PPSR.

Address for

service

This will be the main contact address at the secured party (usually

the supplier) for communications regarding their registration. Will

usually be a designated email address.

AllPAAP (All

Present and

after acquired

property)

A Collateral Class usually representing a General Security interest

over all a business’s assets. Broadly an equivalent of what used to

be termed a ‘Fixed and Floating Charge’.

Attachment ‘Attachment’ can have a few meanings. Primarily it is when a

security interest actually takes effect against specific property – it is

no longer a ‘potential’ interest but an actual interest.

Collateral Property that is subject to a security interest. Collateral is one of four

key components required to register a financing statement on the

Personal Property Securities Register (PPSR).

Collateral

Class

A predefined description established to categorise the nature of

the collateral over which a registration has been lodged, eg, Other

Goods, Motor Vehicles, Watercraft, Livestock etc.

Creditor A person or organisation to which a debt is owed. Otherwise known

as a ‘Secured Party’. Will usually be a supplier or financier.

Debtor A person or organisation that has an obligation to repay a debt. In

PPSR terminology ‘the Grantor’.

Discharge This is the act of releasing a registration on the PPSR and should

only be undertaken when the debtor/grantor has paid all

outstanding monies and there is no expectation of future trading.

Financing

change

Statement

The information required to be authorised in order to make an

alteration to any information in a financing statement registered in

the PPSR. This can be used to renew, discharge or subordinate a

financing statement, or change information in the financing

statement itself.

Financing

Statement

A formal term for a registration on the PPSR.

Grantor This is the entity that is ‘granting’ the security interest and will usually

be the same party as the ‘Debtor’. Could also be a Guarantor.


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Perfection Perfection is a process that gives a security interest the protection

and benefits of the Personal Property Securities Act (PPSA).

A security interest may be perfected by:

Registration

Possession

Control; or

Force of the Act (as per transitional arrangements)

PPSR Personal Property Securities Register. A publicly accessible,

Government created, electronic ‘noticeboard’ for registering

security interests over non-real estate property.

Personal

property

Also known as ‘collateral’, or belongings, personal property can be

tangible or intangible. Excludes all forms of real property, such as

buildings and land. Examples include motor vehicles, money,

goods, livestock, investment securities, intellectual property, and

licensing rights.

Purchase

Money

Security

Interest (PMSI)

Where the property being used as collateral is securing its own

purchase price such as might be the case in a Retention of Title

arrangement. PMSI’s have priority over most other interests in the

same collateral provided they are designated as such in the

registration.

Registering

party

A registered user of the PPSR who acts on behalf of a secured party

to submit a financing statement or financing change statement for

registration.

Registrar The Government Administrator of the Personal Property Securities

website appointed under the PPSA. The PPSR is currently

administered by AFSA (the Australian Financial Security Authority).

Re-

instatement

The PPSR Registrar may restore a registration to the Register if it has

been mistakenly discharged or removed.

ROT (Retention

of title)

A retention of title clause allows the supplier to retain ownership

over the goods supplied until full payment for them has been

made, thus providing the supplier with a form of security against

the buyer’s default or insolvency. In order to be at all effective, this

needs to be registered on the PPSR.

Secured party A person or organisation that holds one or more security interests

for their own, or another’s, benefit. Otherwise known as a

‘Creditor’.


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Secured party

Group

Secured Party Groups are unique identifiers within the PPSR. They

are essentially the creditor, lender or person taking a security

interest over personal property. A Secured Party (SP) creates a

Secured Party Group to represent itself on the PPSR the first time it

accesses the PPSR in order to make registrations. A Secured Party

Group may contain one or more Secured Parties.

Security

agreement

An agreement which creates an enforceable claim (or security

interest) in a party’s property so that in the event of default, the

secured party can take possession of that property in order to

offset the debt.

Security

interest

An enforceable claim (or investment stake) created by a

transaction that secures payment or performance of an obligation.

A Security interest arises from a Security agreement.

SPG See ‘Secured Party Group’ above.

Super priority A security interest superior to that of other security interests – a term

typically used to refer to a Purchase Money Security Interest (PMSI).

Transitional

period

A transitional period for the Personal Properties Securities Act (PPSA)

established in order to deem valid security interests, already in

place at the time the PPSR started, as ‘perfected’ without any

further need for registration for a period of 2 years from Register

commencement. Beyond that point continued protection under

the Act requires specific registration. The transitional period ended

on 31/01/2014.

Verification

statement

The information that is sent to the address for service of the

registering party providing validation of the registration of a

financing statement or financing change statement.


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Index Collateral, 3, 4, 5, 10

Collateral Class, 2

Consignment Stock, 8, 19

Corporations Act, 13

Debtor financing, 21

Debtor Wash, 26, 27

First in time, 18

General Security Interest, 17

Giving of Notice Identifier, 2

Grantor, 5, 25

Leasing, 9, 19

NCINet, 27

On-sale, 11

Perfection, 5

Personal property, 4

PMSI, 18, 20

Preference Claims, 13

Priority, 16

Proceeds, 11, 20

Purchase Money Security Interest, 2,

18, 25

Ranking, 18

Real Estate, 4, 12

Retention of Title, 6, 7, 8, 10, 14, 19, 20

ROT, 6, 7, 14, 19

Section 64, 20, 23

secured debt, 13

Secured Party, 5

Secured Party Group, 2

Security agreement, 3, 4, 5

Security interest, 8, 14

Super priority, 20

Trust, 25

Trustee, 25

Unfair Preference, 12

Vehicle Identification Number, 11

Vesting, 7

VIN, 11

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