10 Tips for Securing your Interest in Personal Property

10 TIPS FOR SECURING YOUR INTEREST IN PERSONAL PROPERTY

1. Understand what a security interest is
   A security interest gives you a legal claim over personal property if someone owes you money or fails to meet an obligation. It’s created through an agreement between two or more parties. The types of personal property covered by the Property Securities Act 2009 (Cth) (PPSA) include items like vehicles, boats, machinery, stock, bank accounts, and cash. However, it does not cover land or buildings—those are governed by different laws.
2. Understand the purpose of the PPSR
   The Personal Properties Security Register (PPSR) is a national online system where you can register your security interest. While registering your interest on the PPSR is technically optional, it’s strongly recommended because it protects your legal rights to the property. If the person who owes you money defaults or goes bankrupt, registration makes sure your claim is enforceable. Without registration, your claim may be weaker in the eyes of the law.
3. Register your security interest promptly
   Timing is key when it comes to protecting your interest. The earlier you register your security interest, the better your chances of securing your priority position. Ideally, you should complete the registration before finalizing the transaction. If you wait too long, someone else may register their interest before you, which could give them priority over your claim.
4. Secure leased or hired equipment
   If your business leases or rents out equipment, tools, or goods, it’s crucial to register those interests on the PPSR, especially for longer-term leases. If you don’t, the law may treat the person leasing or renting from you as the owner of the goods. If that person becomes insolvent or goes bankrupt, you could lose your rights to the equipment. Registering your interest protects you from that risk.
5. Ensure the details are accurate
   Accuracy is critical when registering your security interest. Be sure to double-check that all the information—like the description of the property, details about the debtor, and the terms of the agreement—are correct. Small errors can make your registration invalid. For instance, a common mistake is registering against a company’s Australian Business Number (ABN) instead of its Australian Company Number (ACN). This simple error can prevent you from enforcing your claim, so careful attention to detail is essential.
6. Timing is key
   To avoid losing your security interest if the person or company you’re dealing with goes into liquidation, make sure you register at least six months before any formal insolvency event (like liquidation). Alternatively, if you’re creating a new security interest, you have 20 business days from the date of the security agreement to register it. If you miss these deadlines, the security interest may “vest” in the company—that means you lose your rights to the property, which could go to the liquidator.
7. Be aware of the ‘PMSI’ super-priority rule
   A Purchase Money Security Interest (PMSI) is a special kind of security interest that gives you super-priority over other claims. This happens when you’ve provided financing for the purchase of an asset—like lending money to someone to buy a piece of equipment. To get this super-priority, you must identify and register the interest as a PMSI and follow strict timing rules. The registration must happen within specific timeframes (such as within 15 days for certain types of property). If done correctly, you’ll have a better claim than other secured parties.
8. Conduct regular audits of your registrations
   After registering your security interest, it’s important to keep everything up to date. Conduct regular internal audits to ensure that your registrations on the PPSR are still accurate. For example, the description of the property may need to be updated, or you might need to adjust information if the debtor’s details change. Staying proactive with these checks will help you avoid future disputes or complications.
9. Know what to do if a security interest has been incorrectly registered
   Mistakes happen, but they can be costly if not corrected quickly. If you realize that your security interest was registered incorrectly, it’s crucial to act fast. Seek legal advice immediately, as you may need to lodge a new registration and apply to the Court for an extension of time. This can help you avoid losing your security interest if the other party goes into administration or liquidation.
10. Seek professional advice
    The PPSR and the process of securing your interest can be complicated, especially if you’re unfamiliar with legal terms and processes. If you’re unsure about any part of registering your security interest or how to protect your rights, don’t hesitate to consult with a legal professional. They can help ensure everything is done correctly and guide you through any issues you might face.