If you are in the business of leasing out goods, there are several ways to mitigate risk. Often, security interests are registered on the Personal Property Security Register (“PPSR”), but this alone may not give you the optimal protection you require.
The Personal Property Securities Act 1999 (“PPSA”) gives owners of goods an automatic security interest in long-term leases. However, this doesn’t fully protect your right to these items if creditors have a registered security interest.
The Personal Property Security Register (“PPSR”) acts as an online “noticeboard”. Anyone can access the PPSR to find out security interests registered against a person or entity.
The PPSR ranks security interests by priority. Unless otherwise agreed between the security holders (for example, by way of a deed of priority or subordination agreement), an earlier registered interest will rank ahead of later interests.
Accordingly, registering a security interest on the PPSR is the first step towards protecting your interests. This process is relatively straight forward and simply requires registering a financing statement on the PPSR for a small fee.
The PPSR is used to establish the order in which competing creditors will receive their share of any proceeds. If you have failed to register your interest, banks and other secured creditors may acquire rights to your leased items and use them to pay off debt, regardless of your ownership.
To give your security interest “super priority” you can also register a Purchase Money Security Interest (“PMSI”) over your goods. A PMSI is registered on the PPSR and gives you rights to the item first and foremost, ahead of any other creditors in the case of liquidation or receivership.
Timing is crucial for the registration of your financing statement. It is best to complete registration before you allow a lessee to take possession of an item, as priority is based on when the security is registered. In order for a PMSI to be effective, you must register your interest within the first 10 workings days of the lessee taking possession.
Once registered, your financing statement lasts for five years. The PPSR does not notify individuals of upcoming expirations so it is your job to keep track. If the lease is to continue, you must renew the financing statement prior to expiration. Should you allow the registration to expire without renewal, you risk losing your priority over the goods.