Introduction to Security Interests

When supplying plant and equipment or other goods for incorporation into works, builders will often do so at the risk of not getting paid in full. For example, a builder may order a high value of components (window, framing or other components) for later incorporation into the works without being paid in full.

To reduce the risk of a default in payment obligations for the supply of such materials, it is recommended builders or suppliers:

1. include in their contract a provision which creates a security interest to secure the repayment of the debt; and
2. take steps to register their security interest against their client over any plant and equipment or other goods they have supplied but which they have not yet been paid for.

Within this article we will explore what the PPSR is, and why it is important to register a security interest on the PPSR to secure payment and protect your business.

Registration of a Security Interest over personal property

A security interest can be registered on an online register called the Personal Property Securities Register (‘PPSR’) which is governed by the Personal Property Security Act 2009 (Cth). Once the party that registered the security interest has received full payment for their plant and equipment, they can remove that security interest from the PPSR.

Security interests can be registered over personal property such as:

• vehicles, such as cars, boats and aircraft;
• goods or materials;
• equipment (including any plant which has been hired out by a builder);
• stock in trade;
• commercial licences (excluding government issued licences);
• crops and/or livestock;
• patents and/or copyright;
• debts and bank accounts;
• shares, cash and cheques.

Conversely, security interests cannot be registered over:

• Land, buildings or fixtures;
• Water rights, and
• Government-issued licences.

Examples of Agreements that can create a Security Interest

Aside from building contracts and equipment supply agreements, the following agreements may create a security interest in favour of the supplier of goods or services or alternatively a lender, a credit provider, or a lessor:

• loan agreement;
• general security agreement over a company’s present or after-acquired assets;
• chattel mortgage;
• hire purchase agreement, hire agreement or lease of personal property;
• conditional sale agreement (including an agreement to sell subject to retention of title).

Do you need an express right in your Contract to Register on the PPSR?

Before registering of a security interest, you must ensure the party has consented to grant to you a security interest. Please note penalties apply to individuals or companies who invalidly register a security interest on the PPSR, and it is a criminal offence to fraudulently misuse the PPSR.

The Personal Property Security Act 2009 (Cth) doesn’t require a party to have an express right within a contract to register a security interest on the PPSR. That said it is recommended a contract clearly outlines the grant of a security interest and consent to register it on the PPSR, as this would avoid any disputes as to the parties’ intentions when they were negotiating the contract.

The Key Benefits of registering a Security Interest on the PPSR

Once a party has registered a security interest over personal property on the PPSR, they benefit from:

1. becoming a secured creditor with a ‘perfected’ security interest which is enforceable against third parties. In the event the debtor becomes insolvent or enters into administration or receivership, the secured creditor has priority over any other unsecured creditors ie, they have a much better chance of getting paid; and
2. being notified if the debtor tries to sell, transfer or otherwise dispose of their right title and interest in the asset.

On this basis, it is recommended builders and suppliers ensure their agreements provide an express right to register a security interest on the PPSR in respect of goods they supply and take the time to register their security interest on the PPSR.

Keystone Lawyers are able to provide you with assistance should you need advice as to whether you have a valid Security Interest, are allowed to register that Security Interest on the PPSR, or otherwise need assistance with a PPSR application.