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PPSR mistakes which may invalidate your security

 
The primary purpose of our newsletters is to inform clients and other interested parties about topical PPSA issues, rather than to promote a product or service. This newsletter is the exception. 

Sometimes an issue arises where it is appropriate to both inform and provide a solution. The issue we will consider today is the effectiveness of security interests registered on the PPSR. Or more precisely, the circumstances which limit the effectiveness or render invalid your registered security interests.

EDX has completed over 100 formal compliance reviews and remediation projects for organisations already registering on the PPSR, and many more informal reviews in the course of our work. Our formal engagements cover the following sectors:
 



 
Organisation Type Number
Bank 1
Non-bank financial institution 10
Retention of title supplier 58
Hire 40
Total 109
Problematic Girl Fuzzyborder-214

The incidence of error has been alarmingly high and our initial conclusion was that every possible mistake that could have been made has been made. Closer examination did however reveal some overarching themes. The following table highlights the most important of these together with the likely consequence of the error.
 
Error Likely Consequence
Claim a security interest is transitional when it is not. Registration will be ineffective.
Claim a Purchased Money Security Interest (PMSI) when there is none. Registration will be ineffective.
Fail to claim a PMSI when the security interest is a PMSI. The super priority of the PMSI will be lost and priority will be determined by other rules (most often the first to register).
Registration of PMSIs outside of specified time limits. The super priority of the PMSI will be lost and priority will be determined by other rules (most often the first to register).
Registration of security interest more than 20 business days after the security agreement was created. Registration will be set aside if the grantor becomes insolvent within six months of the date of registration.
Error in the serial number of a serial numbered good (most often a motor vehicle). Registration will be ineffective.
Selection of incorrect collateral class.  Registration may be ineffective – or will be ineffective if a serial numbered good has been registered under the wrong collateral class.
Failure to identify grantor in the required manner (eg – using company name or ABN instead of the required ACN, and/or the treatment of trading trusts). Registration will be ineffective.


The register has now been operative for four years. In view of the level of error we have discovered, we suggest that every organisation which registers on the PPSR should conduct an audit of its registrations. Of course, that is easy to say – but a daunting prospect without help.

We have developed a suite of services to minimise the pain and disruption of the audit and more importantly, to ensure that future registrations are processed in a PPSA-compliant manner.

The services include:
  • ‘Desktop’ compliance review. This is a high-level review of a small number of your financing statements and terms of trade, designed to uncover any obvious errors which may extend across your portfolio of registrations. There is no charge for this review.
  • Full compliance review. This gets down to detail. We will retrieve all your registrations from the PPSR and apply our analytical techniques to identify errors or registrations which require further investigation. Fees are volume-driven and discussed with you ahead of the assignment.
  • Remediation. This is the processing of amendments, new registrations (and where applicable – discharges) to correct the errors discovered in the full compliance review. Fees are volume-driven and discussed with you ahead of the assignment.
  • New registrations and registry maintenance. We will consider the volume and complexity of registrations, together with in-house resources and recommend the most effective way to process new registrations and attend to registry maintenance. If this service is provided in conjunction with the full compliance review and remediation, there is no further charge for this report.
Who can benefit most from PPSA compliance?

The information in this newsletter is most appropriate for organisations that are registering to protect their interests. It is also relevant to the following groups:
  • Organisations (and their solicitors) that are acquiring businesses which register on the PPSR to protect their interests. An important part of due diligence may be to ensure that the target’s registrations are PPSA-compliant. We can work very effectively with the acquirer’s solicitors in this regard
  • Organisations that register on the PPSR and are preparing themselves for sale. A demonstration of PPSA compliance may not necessarily increase the price, but it will almost certainly ease the passage of the deal.
Do it once, do it right
If you read nothing else, read this

The key point is that time is working against you. The PPSA is very unforgiving if you get it wrong. Our mantra is “Do it once – do it right.”

Call us today on +613 8820 5018 if you have yet to audit your registrations.





 

ABOUT US

EDX started its roots in New Zealand where EDX Limited has been consulting and providing registration services on New Zealand's equivalent of the PPSR for more than a decade. 

EDX Australia Pty Ltd commenced in 2010 and has established a network of Consultants making it the only national PPSA consulting and registration services provider in the country.

About EDX Pty Ltd

 

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CONTACT US

+61 2 9119 5065
edxsupport@equifax.com