Hidden benefits of Personal Property Securities Register

Did you know that not using the Personal Property Securities Register (PPSR) could expose your business to unnecessary risk? 

Despite the fact that the online register celebrated its 10th anniversary in May this year, a surprising number of small business owners are not aware of the reduced financial risk that comes with registering security interests on the PPSR. 

Registering your security interest on the PPSR may give you a better chance of recovering a debt if your debtor defaults. (Note:  Suppliers of stock need to register before delivery and suppliers of equipment need to register within 10 working days of delivery)

What a lot of people don't realise is registering on the PPSR is a valid defence against Insolvent Transaction (voidable preference) claims. 

To date, you or one of your clients has probably never had to pay money back to a liquidator on a debt you have already collected.  If you do it's going to hurt as it feels like you are being penalised for doing your job properly! 

Insolvency Practitioners are increasingly using Insolvent Transactions as their only means of recovering funds for creditors. 

 

What is an Insolvent Transaction? 

Insolvent Transactions can only arise when the debtor goes into liquidation and are covered in Section 292-296 of the Companies Act 1993. 

A transaction is voidable on the application of the liquidator if: 

  • At the time the payment was made the company was unable to pay its due debts; and
  • The payment was made within the specified period (up to two years prior to commence of the liquidation); and
  • The creditor received more than they would have been likely to receive in liquidation.

 

We are suggesting that if the company was unable to pay its debts within terms of trade, and if the payment was made in the specified period, it may be pursued as an Insolvent Transaction but if you have registered a specific security to cover your supplies (a purchase money security interest "PMSI") then you will have a valid defence. 

The reason for this is that the payment was simply settlement of a PMSI with a "super priority" and that consequently the secured creditor received no more than they would have been likely to receive in liquidation. There were no creditors with a higher priority.   

Please be aware that this has not been tested in Court.  There are ways in which a liquidator may seek to challenge this. 

As insolvency practitioners, McDonald Vague constantly sees what happens when people do not register on the PPSR correctly, or don't use the PPSR at all.  We can assist in mitigating the risk of Insolvent Transactions for you or your client losing priority to another creditor by implementing a PPSR policy.  We can also review terms of trade to ensure there is a right to register a PMSI or a General Security Agreement before goods are supplied. 

Call Tony Maginness for a free consultation about registering on the PPSR and terms of trade.

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