The Purpose of The PPSR Explained

“The losses can be huge when a customer goes out of business without paying what it owes,” says Andrew McLellan, EDX from Equifax PPSR expert.

“Business owners can safeguard against this not uncommon scenario by making sure PPS registration is part of the armoury they use to guard against bad debt.”

Struggling customers who managed to hold out through the pandemic with government stimulus may find it too hard to survive on their own when support measures cease.

“It’s prudent to prepare for the effects of this pandemic to continue weighing heavily for some time, even though we all hope this doesn’t eventuate,” McLellan says.

“Given the uncertainty in our current climate, companies shouldn’t delay a moment longer before registering on the PPSR.”

What is the PPSR used for?

The PPSR is a national online noticeboard that allows businesses to register their security interests in equipment and goods – known as ‘personal property’. Correct and on-time registration secures your rights over this personal property, even if it has been sold-on, mixed or installed onto other goods.

Registering on the PPSR is a powerful way to protect your financial interests when a customer becomes insolvent. It is crucial for any business that:

• Sells goods on Retention of Title (ROT) terms
• Leases or hires goods like plants, equipment and motor vehicles
• Consigns goods (for sale on your behalf) to others
• Lends money or gives credit and takes security for it over your customer’s assets (not including land, buildings and fixtures).

Suppose a customer goes bust before paying you. In that case, you now have the legal rights and ability to recover these goods and assets. Becoming a secured creditor has many advantages, including the opportunity to voice your claim and negotiate with the insolvency practitioner. Other benefits include the opportunity to:

• Collect unpaid stock
• Receive payment from trade debtors and/or the insolvency practitioner
• Immunity from an Unfair Preferences claim
• Receive payment for outstanding invoices when a customer sells their business.

What if you don’t register?

If you haven’t registered a security interest, you’re an unsecured creditor. This means you are a low priority and will rank after secured creditors.

As an unsecured creditor, you won’t get a seat at the negotiating table with the insolvency practitioner. Instead, you will have to battle it out with other unsecured creditors for any funds leftover after the secured and priority creditors are paid. Your chances of recovering much or any of what you’re owed are slim.

It’s a common misconception that when you own an asset, it’s yours to keep. If your business hires or loans equipment to third parties and has no PPS registration, you have little protection over your equipment should your customer go broke.

Too often, businesses worry about the cost of registering on the PPSR while ignoring the cost of not registering. It will cost you a lot more to get it wrong than to get it right.

McLellan advises that businesses look at the cost as they would an insurance policy – an expense to guard against future loss. If a customer goes bust, the small price of registration is negligible compared to what you are likely to lose.

Deciding to save money by only registering your larger, more significant customers is also fraught with problems. Refer to 5 Powerful Reasons to Register Your Small Customers on the PPSR to find out why.

How to avoid a registration error

In your haste to register, don’t fall into the common trap of rushing through the process and making errors. A report released by the Australian Small Business and Family Enterprise Ombudsman found that while the PPSR gives small business owners a great opportunity to secure their assets, the process is overly complicated and the language too technical.

All it takes is one simple mistake when registering on the PPSR to invalidate your security interests. Easily made errors include incorrect registration as a secured party group (SPG) or claiming a security interest is transitional when it is not.

“You may have a staff member who understands how to do the registrations, but what happens when there are staff changes? A common reason companies ask us to monitor and maintain their registrations is to avoid the huge task of retraining staff in the complexities of the government register,” said McLellan.

The register allows for very few types of amendments, so it’s vital to get your registrations right the first time. 

Don’t forget renewals

Putting an effective PPSR renewal policy in place is another crucial part of protecting your business against risk. Once a PPS registration is allowed to expire, it can’t be extended, recovered or renewed. That means you go back to square one as an unsecured creditor.

Do you know when your registrations are up for renewal? It’s not an easy question to answer if you have thousands all renewing on different dates. This is where automated solutions can step in, helping you figure out which registrations need renewing and speeding up the renewal process. Equifax’s business-to-government software solution, ESIS, handles bulk renewals with ease and provides notification of expiring registrations at a time frame of your choosing.

For purpose-fit guidance and exceptional support in validating, updating and renewing PPS registrations, contact our PPSR specialists at EDX by Equifax. With 40 years of combined experience in insolvency and credit management, they make it their mission to help businesses like yours use the PPSR to insulate against risk, including negotiating with insolvency practitioners to protect your rights as a creditor.

Resources

For actionable PPSR tips and takeaways to apply within your business, download our eBook: The Beginners Guide to the PPSR.

Useful reading: Real-World Examples of What Happens When Customers Go Insolvent