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PPSR mistakes which may invalidate security
By Malcolm Poslinsky, Director – Brilliant Credit Management
Imagine going to enforce your registered security interest against an insolvent customer,
only to find a defect in your PPSR registration limits your security. Worse still – imagine if
your security were completely invalidated due to a simple error.
Then imagine auditing all your other
registrations to check whether the
defects have been repeated. Finally,
imagine the daunting task of processing
amendments or new registrations on to
the PPSR to put it all right.
This is not a fanciful scenario. The rules
for registration are very complex, and
insolvency practitioners are becoming
skilled at exploiting seemingly minor
defects for their own ends.
EDX has completed over 100 compliance
reviews or remediation projects to ensure
the best chance of success when it
comes to enforcement. We have identified
some dominant themes.
Over the course of completing
compliance reviews and remediation
projects for organisations already
registering on the PPSR, we have
discovered common defects that may
limit or invalidate registered security
interests. Our formal engagements have
covered the banking; non-financial
institutions; retention of title suppliers
and the hire industry.
The incidence of error has been
alarmingly high and our initial conclusion
was every possible mistake that could
have been made has been made. Closer
examination did however reveal some
overarching themes. The table below
highlights the most important of these,
with the likely consequence of the error.
The register has now been operative
for four years. In view of the level of
error we have discovered, we suggest
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
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 financing statements and terms of
trade, designed to uncover obvious
errors which may extend across a
portfolio of registrations. There is no
charge for this review;
• Full compliance review. This gets down
to detail. We retrieve all registrations
from the PPSR and apply analytical
techniques to identify errors or
registrations which require further
investigation. Fees are volume-driven
and discussed ahead of the assignment;
• Remediation. This is the processing
of amendments, new registrations
(and where applicable – discharges)
to correct errors in the full compliance
review. Fees are volume-driven and
discussed ahead of the assignment;
• New registrations and registry
maintenance. We 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.
This information is most appropriate for
organisations registering to protect their
interests. It is also relevant to:
• Organisations (and their solicitors)
acquiring businesses which register on
the PPSR to protect their interests. An
important part of due diligence may be
to ensure the target’s registrations are
PPSA-compliant. We can work with the
acquirer’s solicitors here;
• Organisations that register on the
PPSR and are preparing for sale. A
demonstration of PPSA compliance
may not increase the price, but it can
ease the passage of the deal.
Contact 03 8820 5018.
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.
INDUSTRY in FOCUS
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HIRE AND RENTAL NEWS • MAY 2016