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Don't be blindsided by out-of-date security registrations!

We recently helped a client with a matter where a $2 search would have returned a better-than 1000 to 1 cost saving, whilst saving them a lot of angst. Periodically searching the Personal Property Securities Register and checking for obsolete or unused security interests registered against your business can save time and money in the long run. This is particularly relevant if you are thinking of selling your business, any other major asset, or your business has recently repaid a secured loan.

The personal property securities legislation applies to many different types of business transactions in which personal property is borrowed, hired, bought, or even put on consignment. Consequently, many businesses have multiple security registrations against them relating to finance or even other people's goods in their possession (for example, CIG CO2 gas bottles used by hoteliers).

When the Personal Property Securities Register (PPSR) commenced operation in 2011, all the remaining security interests registered with the charges register maintained by the Australian Securities & Investment Commission (ASIC), were migrated to the PPSR as all money's security interests. Most of the remaining security interests registered on the State bills of sale registers also migrated to the PPSR.

Our client had run their business debt free for many years. Unfortunately, they were not aware of the now obsolete remaining security interests registered against their company until just before a major transaction was scheduled. Because these securities had not been identified earlier, they placed the transaction in jeopardy, with the issue arising when the buyer's financier identified those obsolete security interests and asked for them to be removed. This added to our client's costs and stress levels significantly.

One of these securities had been repaid in the 1970's, with the lender voluntarily de-registering in 2002. As the lender's last surviving director died in 2012, our client didn't know of any living person who may have known about the security. The remaining old securities were mostly given to banks, with some being released relatively quickly, and the other securities taking a little longer.

Luckily for our client, there is a process for removing obsolete security interests from the PPSR, and even though our client lost a little sleep, I'm happy to say the process was completed in time for the settlement.

The process involves serving an amendment demand on the secured party (lender, hirer, etc), waiting 5 business days for a response, and then requesting the Registrar to remove the security interest. It doesn't stop there; the Registrar then writes to the secured party, with a further waiting period before the Registrar has the power to remove the security, given that there is no objection from said party. This can become more convoluted if the secured party is de-registered.

Following this initial notice to the Registrar, there are further waiting periods whilst the Registrar allows the securities holder to respond to a notice they send. If there is no response, the Registrar can then remove the registration if satisfied that the registration is no longer valid. In this instance, our client had previously written to the address for correspondence specified in the search. This address ended up being that of the Registrar of the PPSR, who responded by indicating that they did not do releases of security interests (don't you love bureaucracy!).

This was where some specialist knowledge of the process and jargon came in handy, allowing us to assist our client.

We often see companies with 50 to 100+ securities registrations against them, including historic registrations that migrated to the PPSR in 2011, so this is by no means an isolated case.

Even if your business doesn't owe anything, you should undertake a PPSR search of your business periodically. This allows you to organise discharges of obsolete securities promptly, and most importantly, before they have a chance to jeopardise an asset sale or your retirement. After all, the cost of a search undertaken via www.ppsr.gov.au is less than a cup of coffee, which is a small price to pay for what could end up being a substantial cost saving.

Of course, we are always willing to assist you with any queries you may have in relation to security interest registrations against your company, so don’t hesitate to reach out for any further information.

"The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication."