The Top 10 Disasters of Personal Property Financing

Written by Leigh Adams

Do you borrow or lend money with security? Or are you involved in invoice financing, floor plan financing, debtor financing, chattel mortgages or equipment leasing or rentals? If so, then read on – this article is for you!

We are told that the Personal Property Securities Register (PPSR) as it applies under the Personal Property Securities Act (PPSA) is easy to operate. Is it? What can go wrong?

Let’s look at the 10 top disasters we have seen over the past 6 years.

 

Disaster No 1

Your registration is “seriously misleading” and therefore void. Your customer’s liquidator will thank you for coming. Your assets are now in the liquidator’s hands and will be used to pay unsecured creditors. You should thank the liquidator: if you are lucky, you might get 10% back of the 100% of your assets lost to your insolvent customer.

Examples of seriously misleading registrations include:

1. Recording the name of the partnership giving the security as that of an individual partner rather than the firm’s name.
2. Recording the collateral description simply by reference to the date of the general security agreement which created the security agreement instead of describing it by reference to the collateral classes as required by the PPSA.
3. Failing to indicate that the collateral was inventory.

 

Disaster No 2

Forgetting to register the collateral within 20 business days after the security agreement came into Force. Such a registration will not give you any priority whatever if the grantor passes into administration or liquidation within 6 months of your registration.

 

Disaster No 3 

Failing to register Personal Money Security Interests (PMSIs) within 15 business days of the lessee or borrower getting possession (where inventory is not involved).

Again, this will cause your security interest to be of no value at all, if the grantor passes into administration or liquidation within 6 months.

 

Disaster No 4 

Omitting to register a PMSI (in relation to inventory) by the time the lessee or borrower gets possession.

It’s easy to slip up on this one. Just give the money to your customer directly. They are sure to mix it with their own money and thereby ruin the money trail required to get over this hurdle.  The six month rule above also applies to this scenario.

 

Disaster No 5 

Not knowing that failure to describe the PMSI as a PMSI when registering the security interest makes it void and of no effect whatsoever. The bank with a general security agreement will take your property (or cash) and keep it. No wonder bankers are grinners.

 

Disaster No 6

Not  understanding that “inventory” under the PPSA does not just mean inventory as you and I understand the word. It is defined to include “goods held to be provided under a contract for services”.

So the company which supplies its scaffolding to a building site as part of the process in demolishing a building, is supplying “inventory” and needs to register scaffolding as inventory collateral to which the security interest of the scaffolding supplier has attached.

 

Disaster No 7

Not being aware that the PPSA provides that the following circumstances cause a registration with respect to the relevant collateral to be totally ineffective.

1. Miss-spelling the grantor’s name (even by one letter). For example, stating “Technology” rather than “Tecnology”.
2. Miss-spelling the grantor’s name by getting capital letters and spaces mixed up (even where there is no “miss-spelling” per se. For example stating “motorhome” rather than “Motor Home”.
3. Describing the grantor by reference to its ABN where the requirement is that it be described by its ACN.
4. Failing to include a serial number for the collateral when required to do so –  for example, when selling, buying, leasing or financing a motor car or boat.
5. Failing to correctly transcribe the 17 digit VIN for a motor vehicle.f) Not realising that patents, plant breeders’ rights, trade marks, designs, watercraft and aircraft all have serial numbers too and the serial numbers must be used when registering such collateral on the PPSR if it is described as ”consumer property’.

 

Disaster 8

Not realising that the following registrations may be “seriously misleading” and therefore void. It’s just that here have been no cases on the point so no-one knows yet.

1. Getting the ACN of the secured party wrong.
2. Misdescribing collateral. For example, you can describe “apples” as “fruit” but can you describe “fruit” as “apples”, if it is really “pears”?
3. What if you describe the collateral as “steel pipes” where there are numerous types of steel pipes on the property of the grantor when an administrator is appointed? That sounds like a dog’s breakfast to us, but who knows?
4. Describing a PMSI as a “non-PMSI”.
5. Describing collateral as not being inventory when it is.The list goes on and on.

 

Disaster 9

Not realising that the registration requirements for grantor identifiers are different depending on whether the grantor is a body corporate (for example a company), a partnership, a trustee, a body politic, or an individual.

 

Disaster 10

Failing to act on good advice when you need to. One company waited 33 days to register after they became aware of the need to. The Court disallowed their efforts because they failed to act “as soon as practicable”.

 

 

What do you do if things go wrong?  See Leigh Adams. He’ll explain that there are a number of ways forward and they can include the following:

• If you realise your registration has a defect or you have not registered in time, then we will probably recommend a remedial registration as soon as possible. However, the registration may have missed some deadlines and it may be exposed to vesting and priority risks.
• We may recommend that you apply to Court seeking an order extending the time to register (s588 FM of the Corporations Act).
• If PMSI registration is out of time, it might be appropriate to seek an extension of time under s 293 of the PPSA
• We may also recommend that you seek priority agreements or releases with other grantees which may have registered beforehand.The PPSA is a good servant but a bad master. We can help it work for you and not get the upper hand.

 

If you have any queries about Personal Property Financing, or wish to avoid any of the above scenarios, don’t hesitate to contact Leigh Adams at Owen Hodge Lawyers on 02 9549 0754 or via email at [email protected].