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How Does the PPSR Apply to the Corporations Act?

How Does the PPSR Apply to the Corporations Act?

Companies can protect secured interests under the PPSR. Find out in this article how the Corporations Act regulates this.

24th March 2020

The Personal Properties Securities Act 2009 (Cth) provides a way for lenders to register security over property. This can also apply to businesses, where creditors can secure collateral. This will allow a creditor to recover their debts if the company gets into trouble. In this article, we’ll discuss the provisions in the Corporations Act 2001 (Cth) that allow a lender to register their security interests on the Personal Properties Securities Register (PPSR).

The Corporations Act 2001 (Cth)

The Corporations Act governs all corporate business activity in Australia. This includes mergers, directors duties, and insolvency. Another notable provision the Act includes is financial assistance. This means that a company can loan funds to another legal entity. This can simply be a loan, or can be by purchasing shares in the company. Ordinarily, a company must not provide financial assistance if it gets the company into debt. This, as well as intellectual property, equipment and shares mean that the PPSR is a good way for corporate entities to protect their interests.

The Personal Property Securities Act 2009 (Cth)

The PPSA sets out a mechanism for lenders to register security interests. Called the Personal Property Securities Register (PPSR), this register means that those who have registered an interest will be prioritised when a debtor defaults. There are a number of different interests you can register including:

  • Liquid cash
  • Personal property (including vehicles but not land)
  • Artworks and jewellery
  • Intellectual property

Importance of the PPSR

The PPSR is important for individuals or companies who make a loan. It’s also important for those who are purchasing something privately. This is because the PPSR allows individuals to check whether any security interests are registered over a certain item of property. For example, if you’re about to purchase a boat from a private seller, you should check that the boat doesn’t have any security interests attached. If it does have an interest attached, there is the chance that it will be repossessed. However, the PPSR doesn’t only apply to individuals, as there’s many instances where a company may want to register an interest.

Companies and the PPSR

Depending on what your company does, chances are that you’ve hired or loaned out assets or equipment to customers. Businesses can register interests over personal property on the PPSR. A good example of this is if you run a chartered bus company. Registering your fleet of vehicles means that you’ll be protected if a customer does not return the vehicle, or tries to sell it. This also works in reverse – if you’re about to purchase some commercial equipment for your business, it’s important to check that no one else has registered an interest over it.

Shares and intellectual property

You can register shares on the PPSR, as well as intellectual property. An example of this would be if a subsidiary company uses your trademark. You’ll want to register your interest over this to receive priority in the event that the company goes into liquidation. If it doesn’t, there are other parties who would profit from the sale of the company assets before you. This applies even if you can demonstrate your title to the intellectual property.

Registration process

You can register your property on the PPSR by logging in online and registering the unique identifying number of your property. It’s important for companies to do this as soon as possible, as a security interest will not be enforced if it is not perfected. Further, when enforcing your interest against another company, section 588FL of the Corporations Act provides a number of circumstances where a PPSR interest won’t be upheld. This is includes 6 months before:

  • A company enters a deed of company arrangement
  • The company is ordered by the Courts to be wound up
  • A resolution is passed for the company to be wound up
  • An administrator is appointed

If the company is solvent, a security interest won’t be enforced if it is not registered on the PPSR within 20 business days. Either way, it is crucial to register your interest on the PPSR as soon as possible. This way, you will have the highest chance of enforcing your interest.

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Author
Sheza Shahid

Sheza is a legal intern at Lawpath. She is completing a Bachelor of Laws at Macquarie University. She is interested in corporate/commercial issues within the legal industry.