Want to know how a small hire and rental business can use the PPSR to protect the goods it leases?

We’ve created a fictitious case study on a hire and rental business which uses PPSR for risk protection.

Let’s say Mr Smith runs a small business called Earth Moving Specialists which leases out earth moving equipment.

In the same town is Mr Brown, the proprietor of ACE Gardens, which recently won a big contract to re-landscape the local riverbank precinct. Mr Brown approached Mr Smith’s business and leased one of its front end loaders for a term of 12 months, on the understanding that it would be returned at the end of the lease.

Under Australian law, specifically the Personal Property Securities Act 2009, the hire arrangement between Mr Smith and Mr Brown is ‘PPS Lease’ (click for definition).

Mr Smith and his business advisor had recently conducted a risk assessment of his business practices, and implemented the following procedure for each new PPS Lease hire arrangement entered into, which means:

1. Earth Moving Specialists and the lessee (Mr Brown / ACE Gardens) enter into a written agreement that identifies the specific equipment being leased. The lessee signs the agreement before taking possession of the equipment.
2. Mr Smith registers the interest on the Personal Property Securities Register (PPSR) for a cost of $8.00. As the agreement is a PPS Lease, Mr Smith ticks the PMSI box when creating his PPSR registration, to show that he has a Purchase Money Security Interest (click for definition). Doing this gives his registration a ‘super-priority’ over non-PMSI registrations. He must complete the registration within 15 days of the lessee taking possession of the equipment to benefit from the PMSI super-priority.

Mr Brown needed to raise additional funds to run the It’s Big Re-landscaping Project and approached the Bank of Sunnyhill.

As security for the loan, Mr Brown grants the bank a security interest over all of ACE Gardens’ current and future assets, including the front end loader leased from Earth Moving Specialists.

To secure its payment of the debt, the Bank of Sunnyhill registers a security interest in ACE Gardens ‘all present and after-acquired property’ on the PPSR.

Due to unforeseen circumstances, Mr Brown’s business was unable to meet its repayments to the Bank of Sunnyhill which lead to the bank appointing receivers to place ACE Gardens into liquidation.

Because Mr Smith had an enforceable agreement and effectively registered his PPS Lease on the PPSR, he was able to recover his front end loader back from the liquidators.

In addition, because he had registered a PMSI, Mr Smith’s Earth Moving Specialists security interest took priority over creditors with earlier non-PMSI registrations.

Registering the security interest on the PPSR also mitigates the possibility of a lessee wrongfully selling equipment to a third party.

The cost of the registration was $8.00, which Mr Smith thought was a very small fee to protect his assets.

If Mr Smith had not registered the hire arrangement with Mr Brown’s business on the PPSR, the impact on his business could have been very different.

Talk to your accountant or other business advisor and assess your business risks.

With a properly written agreement and an effective registration, the PPSR can help protect your business and your business assets from the possible insolvency of your customers.

The PPSR has recently been updated. Large search results are now more manageable with the introduction of additional filter options and a new download format.

Results of a grantor search are now available in .CSV (a spreadsheet file format). Easily review results using spreadsheet functionality such as filter, find and sort. Then jump to registrations of interest by using the Go to PPSR registration number field.

Additionally, names of secured parties now appear on the search result screen beneath the relevant registration number.

For more information about new PPSR features, go to the PPSR Release Management page.

IMPORTANT – to make sure you continue to receive notices about PPSR system improvements and functionality, customise your PPSR News subscription by clicking here and including ‘B2G’ or ‘account users’ in your range of subscriber options.