By Christian Edwards
It’s been over 4 years since the thousands of registered Australian securities migrated from legacy registration regimes into one centralised Personal Property Securities Register. And, according to the co-founder of EDX, it’s been a mess.
When the PPSR went live on 30 January 2012, there were almost 70 registers in Australia. The Personal Property Securities Act 2009 or PPSA came in to effect on 30 January 2012. A two-year transition period was provided by the government to allow businesses to adjust. They have not.
According to the most recent analysis by Veda, only 15 per cent of Australian businesses are currently using the PPSR. Even more damningly, four out of five are making errors in the process that can entirely invalidate their security interests altogether.
Co-founder of EDX, Kim Powell said: “I think that’s being very generous but whether its 15 per cent, 10 per cent or 20 per cent, you can take it that there’s a long way to go.”
He added that while it was in the best interest of businesses to register their property on the PPSR; the reality was the overall level of adoption in Australia remains low.
“It’s a pretty shocking statistic and this really just reinforces what is being said about the complexity of the act.”
Aussie businesses floundering
The transition to a single national register has not come without its challenges and the intervening time has seen many Australian businesses flounder in the attempt to comply and adapt to the change.
The legal reforms – as well as the Whittaker review that followed – underpinned the use of personal property as security for credit and has a massive impact on everyday business processes, documentation, systems and the management of credit risk.
However, according to Veda, at the end of the financial year there were still only nine million registrations on the PPSR, about half of which are motor vehicles. For creditors or businesses dancing around insolvent relationships, the consequences under the unified act are absolutely black and white.
“If you are caught within the scope of the PPSA and you haven’t registered then you’re in trouble. On the overwhelming balance of probability you’ll lose your goods.”
Moses Samaha, Veda general manager, commercial and property solutions, said not correctly registering on the PPSR was both easy to do and a huge risk.
“According to Veda’s data, more than 80 per cent of businesses that have adopted the regime are making mistakes, which may limit or even invalidate their rights to recover their property, should one of their customers become insolvent,” he added.
Kim Powell put it this way: “My general rule of thumb is that until your lawyer can call you and say you haven’t been caught out by the complexity of the PPSA, then assume you have. As one judge said: the PPSA can deliver seemingly draconian results – and then proceeded to give his actually draconian judgement.”
However, if a business registers on the PPSA, according to Powell “you are a secured creditor”.
“And as secured creditor you are part of the insolvency practitioners administration and there is a statutory and professional obligation to deal with you – as such – and some of them just do need reminding of that with a size ten boot,” he said.
EDX recommends following these five steps when navigating the PPSR:
1. Risk assessment – Consider if the PPSR is right for your business needs. If you supply goods or equipment and aren’t registered, assess why not and consider the risks of not being covered.
2. Assurance review – Be sure your registrations are correct. There is no halfway house – if any mistakes have been made during your registration, any claim you make on your property down the track may be rejected.
3. Correct any mistakes – Update your registrations with the correct information to ensure your property is protected. Seek appropriate professional assistance to ensure what you’re doing is right.
4. Implement systems-based controls – Remove manual processes wherever possible to avoid human error, and update relevant business processes to maintain updated registrations on an ongoing basis.
5. Consider your enforcement approach – Keep your registration documents in order and monitor your customers so you are in the best position to reclaim.
*Christian Edwards, Asia-Pacific Banking & Finance, Email: firstname.lastname@example.org