The Personal Property Securities Act 2009 (Cth) (hereafter called ‘PPSA’) is dangerous for people (hereafter called ‘owners’) that, as part of their business, lease or loan goods to others (hereafter called ‘lessee’).
When goods are loaned or leased for a term of more than one year, or, an indefinite
term – that is any length of time, no matter how short, without a firm end date – the owner of the goods may unknowingly be creating a deemed security interest in the goods which requires registration under of the PPSA.
The problem is of course that the average person has no idea that they are creating a deemed security interest and therefore no idea of the need to register it.
Often, the first time the owner of the goods becomes aware of a problem is when someone else asserts a right to take the goods directly from the lessee. The logical exclamation from the owner is likely to be ‘But, I own it!’ Well, hard as it may be to believe, that may not matter.
The PPSA provides that where the owner doesn’t register their deemed security interest:
- upon insolvency the goods become the property of the insolvent person, and therefore open to be taken by a liquidator;
- upon sale to a third party, the third party takes free of the security interest, that is, free from the interest of the owner; and
- in terms of priority, the unregistered security interest ranks below a registered security, which makes the property open to be taken by a secured creditor’s receiver.
Why on earth, you might ask, did someone come up with such a law? Well, it is to aid secured lending by addressing what would otherwise be problems with apparent ownership.
When a financier loans money, they do so after making an assessment of the value of assets that the borrower has. If you look like you own a lot of assets because you lease or have been loaned a lot of assets, then the rationale is that, in absence of the true owner declaring their ownership through registration, the financier should be able to access the assets if the borrower defaults.
If you need assistance with any commercial problems, contact Everingham Solomons because Helping You is Our Business.
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