What you should know about the Personal Property Securities Act

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Key points in this article:

  • The Personal Property Securities Act (PPSA) protects you and your clients
  • Failing to comply may result in your customers losing significant money
  • Registering assets under the PPSA is easy and guarantees your customers will not relinquish assets they may have leased to a third party in the event of that third party’s insolvency.

The Personal Property Securities Act (PPSA) is federal legislation that changes the way security interests in personal property assets are governed.

But what does this have to do with the world of asset finance?

Well, it impacts your clients in two critical areas:

  • Where your client hires, leases, or rents their equipment to their customers
  • Where your client uses an asset protection structure.

In both cases, the issue concerns the hire of equipment. In simple terms, the PPSA removes the notion of an ‘ownership interest’ in equipment, replacing it with a ‘security intertest’. Because it’s a security interest, PPSA requires it to be registered.

Let’s check out a case study that describes PPSA in action.

General Electric versus Forge Group

When General Electric (GE) leased four gas turbines to Forge Group, GE was unaware of PPSA and failed to register the security interest for the leased equipment.

while still in possession of the gas turbines leased from GE. And under the legislation, the equipment not registered under PPSA was, in effect now entrusted to Forge Group.

What did this mean for GE?

GE’s failure to register their security interest means the equipment therefore belongs to Forge. They argued their case before the Supreme Court of NSW, but it was a lost cause. The receivers of Forge Group just picked up $50 million of gear because GE failed to perform a $16 registration of their security.

The lesson?

If you provide finance, supply, lease, hire or loan assets to third parties:

  • educate your customers to seek appropriate advice from an expert
  • remind your customers to register their ‘security’ interest in the assets to protect their position
  • failing to properly register may result in the loss of their assets in the event of insolvency.

In summary

Educate your clients and stress the importance of PPSA. You want to ensure your clients are registering their security interests and protecting their assets. Because not doing so can be costly.

For more information, reach out to PPS Advisory to ensure your customers get it right!

This article was provided by guest author, Simon Read from PPS Advisory.