Don’t get caught out by these common PPSR mistakes | Expert insights

Written in collaboration with Jeff Shute from insolvency and reconstruction firm Shaw Gidley

Does your business lend or lease goods, sell on credit or provide loans? If so, are your 'leased' assets registered as security interests on the Personal Properties Securities Register (PPSR)? And are you confident your entries are error-free?

Failing to register or making a mistake in a PPSR registration could lead to losing your leased assets to creditors or leaving your business exposed in the event of default or insolvency.

We've seen clients nearly caught out—and some who actually were. One client supplying plant and machinery had their PPSR voided after an innocent admin mistake on a yes/no question. When their customer entered voluntary liquidation, it led to costly negotiations to get their equipment back.

There are also many high-profile cases where large businesses have lost millions due to simple oversights.

To help you avoid these risks, we’ve outlined the most common PPSR mistakes and how to prevent them.

1. Not registering personal property on the PPSR 

Not realising you need to register an interest in personal property you’ve sold, leased, rented or secured on the PPSR is the first mistake. 

By properly registering your security interests over personal property on the PPSR, you gain significant protection for your business. 

It ensures your claim to assets is legally recognised if a borrower fails to meet their obligations. It also gives you priority over other creditors in the event of insolvency. 

You should be registering a claim if your business involves any of the following activities, even if they represent just a small part of your operations:

• Lend or lease goods – Such as equipment or vehicles. This is common in industries like construction, transport, events and manufacturing. 
• Sell goods on credit – And retain ownership until payment is complete (retention of title). This is common in industries like goods wholesale, automotive, construction, and food and beverage. 
• Provide loans – And use assets like inventory and machinery as collateral. This is common in industries like financial services, manufacturing and retail. 

Personal property accepted on the PPSR includes: 

• Tangible property like cars, boats, equipment, crops, livestock and intangible assets like intellectual property
• It doesn’t apply to land or buildings 

Importantly, a ‘lease’ of personal property only qualifies for the PPSR if the agreement is for more than two years, an indefinite period lasting more than two years, or a short-term lease that automatically renews beyond two years.

Example: General Electric (GE) leased four mobile gas turbine generator sets to Forge Group and didn’t register its interest. When Forge went into liquidation this ended up being a $40 million mistake for GE.  

2. Not marking your interest as a PMSI

If you don’t mark your security interest as a Purchase Money Security Interest (PMSI), you’ll lose the special priority that comes with it.

A PMSI is a special type of security interest that gives you priority over other creditors in certain situations. It’s typically used when you lend money to someone to buy goods or assets or sell goods on credit terms.

Basically, it lets you secure a loan or credit against the goods supplied, purchased or offered. 

For example, if you lend money to a business to purchase equipment, registering a PMSI ensures you get the equipment back if they default before any other creditors can lay claim to it. 

3. Not registering your interests in the time limits

You typically have 20 business days to register a security interest on the PPSR after the interest is created. If you’re registering a PMSI, you have even less time to get ‘super priority’ as follows:

• Before they take possession – If the goods are part of the borrower's inventory
• Within 15 days of them taking possession – If the goods aren’t part of the inventory 

If you register late, you won’t be protected against a borrower’s insolvency for six months from the registration date. 

Example: Doka Formwork ‘leased’ formwork equipment to Relux Commercial but failed to register their interest in time. Because of this, when the company went into liquidation, Doka lost its claim, and the liquidator seized the equipment. 

4. Registering with the wrong business identifier 

When registering a security interest on the PPSR, it’s crucial to include the correct business identifier. Your Australian Business Number (ABN) and Australian Company Number (ACN) are closely linked, but they’re not the same.

Here’s a general guideline to follow:

• Register against the ACN – If your customer operates as a company
• Register against the ABN – If your customer is acting as a corporate trustee or on behalf of a partnership 

Getting this right ensures your registration is valid and protects your interests. 

Example: BMW entered into a chattel mortgage arrangement with a customer for a luxury vehicle. They stated the customer purchased the vehicle in its capacity as a corporate trustee for a trust but didn’t register it under the ABN of that trust. 

When the customer’s company went into administration then liquidation, the registration error left BMW with a general unsecured claim for the $450,000 owed rather than a secured interest in the vehicle.

5. Adding the wrong serial number

When you register certain properties on the PPSR you must include the identifying serial number. This number helps to clearly link it to your security interest.

Some examples of identifying serial numbers include:

• Vehicles – Chassis number, VIN (Vehicle Identification Number) or manufacturer’s number
• Machinery – Model or serial number printed on the equipment
• Computers and electronics – Serial number or asset tag
• Tangible goods – Any unique number or code assigned to the item by the manufacturer or seller

Something as simple as getting one or two digits wrong can be enough to affect and invalidate your claim. So, make sure you always double-check when you type them in. 

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Register, know your rights, act 

Now you know the common mistakes, it’s worth checking your ‘leased’ assets to ensure you’re not making any, including failing to register at all. In addition, make sure you’re 100% clear on your rights as a secured creditor.

When registered correctly, you’re entitled to take these actions in case of default:

• Take back or sell goods your customer still has
• Get your fair share of the final product if your goods were used in production
• Claim your part in products that have been mixed together
• Collect any unpaid debts if your customer sold your goods but hasn't been paid yet
• Recover your property before unsecured creditors or competing claims if the borrower becomes insolvent 

If an insolvency practitioner is appointed to take over your customer’s business, you need to act fast. 

This means contacting them to confirm your PPSR registration and property agreements and visiting the premises to identify your goods to either collect or properly document. 

Related: Protection from customer insolvency: How to prevent losses 

Avoid disputes and don’t lose out

By correctly registering interests in the PPS register and acting fast in the case of borrower  insolvency, you can avoid disputes, enjoy peace of mind and won’t be left out of pocket due to lost assets. 

Reach out to your Maxim advisor or contact our team today for a comprehensive review of your PPSR registrations or to discuss any concerns you may have. 

You can also contact Shaw Gidley on (02) 4925 1000.