Forge PPSR decision highlights risks to SMEs

Supreme Court, court

Many SME operators are unaware of the potential risks that they’re facing by not registering transactions on the Personal Property Securities Register

A Supreme Court of New South Wales ruling highlights the very real problems that exist for SMEs and big businesses if a security interest is not perfected by registration of a financing statement on the Personal Property Securities Register (PPSR).

The decision in the Forge Group Power Pty Ltd (in liquidation) (receivers and managers appointed) v General Electric International Inc that the turbines, valued at approximately $50M, vested in Forge immediately before the appointment of Voluntary Administrators on the 11th February 2014 was influenced by the fact that no financing statement for the lease was registered.

Unfortunately, many SME operators are unaware of the potential risks that they’re facing by not registering transactions on the PPSR.

The Personal Property Securities Act can apply to a wide range of personal property which is defined as all forms of property other than real estate and fixtures affixed to land, which includes ‘business property’ including:

  • supply of goods on consignment
  • sale of goods with serial numbers
  • supply of goods financed by leasing or hire purchase
  • goods stored in someone else’s possession
  • goods attached to other goods
  • livestock on agistment
  • tradesman’s plant and equipment
  • motor vehicles
  • boats
  • intangible property
  • artist’s art work
  • sculptures
  • amounts owing by debtors

If a business has registered a customer on the PPSR they can potentially avoid problems with liquidators over preferential payment claims.

Accountants can be seen to be very proactive by offering a PPSR due-diligence review to look at the internal systems of their client to ensure that appropriate decisions are being made promptly as to whether various transactions should be registered on the PPSR, with ongoing reviews to ensure that the system is still being abided by.

Millions of dollars have been lost by Australian businesses through either ignorance of the legislation or failure to register, and a business advisory services should consider offering a PPSR due-diligence review as part of their suite of products.

Peter Towers, Managing Director, ESS BIZTOOLS