PPSA and the SME
So how does the Personal Properties Securities Act (2009) A affect the Small to Medium Enterprise?
Receivables and credit risk
Retention of Title provisions are no longer enough. Registration is now a must to achieve a similar level of protection.
With a large number of customers this may be a time consuming process, but remember if there is little risk of insolvency, then you may wish to make a commercial decision not to register. Also do not forget to get your T&Cs signed up front so documentation is in order.
Consider a PPSR search of any significant new customer before you do business with them as part of your credit approval process. A PPSR Search will not only give you an indication of the creditworthiness of your new customer but may also indicate those of your competitors that your new customer is doing business with and how long they have been doing business with them.
If you are going to register on PPSA do so before you supply a customer. If you don’t you may lose your goods as your counterparty can deal with them and you will lose your rights.
Offsite equipment and other assets
If you lease equipment or have supply arrangements where you provide infrastructure to your customers then you probably need to register your interest. Many of the cases in New Zealand and the main case so far in Australia relate to these sort of arrangements and a failure of the supplying party to register. None of those cases have ended well for the Supplier.
Banks are increasingly including covenants in their lending facilities requiring their customers to register retention of title arrangements they have with their customers on the PPSR. Financiers almost always include negative pledge provisions in their documentation. That is, the creation of further security interests is prohibited without the financier’s permission. Under the Act the definition of what a security interest is has been significantly widened and with the PPSR it is very easy for a financier to monitor the creation of new security interests.
Refinancing or selling
When selling or refinancing individual assets or businesses as a whole the buyer or new financier will undertake a PPSR search as part of their due diligence. Many organisations now have multiple registrations against them. Allow plenty of time to deal with these in any proposed transaction or search your own entities regularly and follow up on parties who no longer have an interest to ensure they remove their registrations.
Businesses often create separate entities to own assets, undertake operational activities or run different lines in order to protect the group if there is an insolvency issue in one of the entities. There are often intercompany transactions, which if not properly documented and registered on the PPSR can leave a group exposed.
For more information please do not hesitate to contact Mr. Miles Anderson at ClarkeKann Lawyers on (02) 8235 1244 or via email at firstname.lastname@example.org.