The registration provisions of the Personal Property Securities Act 2009 (the Act) came into force on 30 January 2012.
The Act provides rules for the creation, extinguishment and enforcement of security interests in personal property and for determining priority among competing security interests. But how does this all relate to the sale of a business. In this podcast, our Michelle Maxwell discusses the topic.
What is the PPSR?
PPSR refers to the Personal Property Security Register and it records third party’s interest in personal property used in a business premises. This can include plant and equipment, vehicles, fixtures and fittings and stock.
When a charge is removed from the register it is commonly referred to as a discharge or a release of a security interest.
Why should the seller turn their mind to PPSR?
If you are selling then you should check what items you are selling and these items should be identified in the contract of sale and you should verify if any of these items are subject to a third party interest. If any items are subject to a third party interest then you must organise for the interests to be released prior to settlement.
This is because a prudent buyer will conduct comprehensive searches on the business to make sure that are getting good title to the business assets that they are paying for.
To avoid any delay in settlement a seller should get their paperwork in order so you are ready to discharge any security interests in a timely manner.
Sellers do not think they have any registered interest on PPSR?
Often we find sellers are very confident that they do not have any security interests registered on the PPSR however a third party does not require the seller’s consent to lodge a security interest on the PPSR and sellers are often surprised at how many security interests are registered against the selling entity when we discover the registered securities interest in a search.
We find it is very common when a seller signs a supplier credit application it can obtain contain terms enabling the supplier to register a PPSR security interest over the seller’s assets. Another common example is when sellers enter into equipment lease arrangements, these agreements also are likely to contain terms enabling the lessor to register a PPSR security interest over the leased equipment such as telephone systems and vehicles. Sometimes finance that have paid off many years ago still remain on the PPSR because neither the seller of the financier have remembered to remove the security interest.
Of course, if the business has a mortgage, then the bank is most likely going to also have a registered security interest over the seller’s assets and generally the bank will be paid out at settlement from the settlement proceeds and the release documents are handed to the buyer at settlement.
When do I pay the secured third parties?
You will find that some of the third parties can be paid out before settlement and these parties will remove the registered security interest from the PPSR. Other third parties, such as the bank, may need to be paid out at settlement from the settlement proceeds and instead of giving a release at settlement these third parties will give a written undertaking to release within 10 business days. The buyer must accept these undertakings.
So what’s next?
So if you are thinking of selling your business or have recently entered into a contract of sale for your business then it is a good idea to turn your mind to PPSR interests and approaching the secured third parties to organise the releases. Getting in early will ensure a smoother transaction for both the buyer and seller.
We can assist with undertaking the PPSR search and once we have the search results we can identify which searches relate to the business being sold and which do not. We can contact any third parties that have security interests which are old trade accounts or relate to debts that have been paid off and we can organise these releases quite quickly.
If you have any further questions or need assistance with this process feel free to get in touch with our office.
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