PPSR subsection causes confusion amongst SMEs

Small businesses are still struggling to understand a subsection of the Personal Property Securities Register (PPSR) more than eight months after its launch, according to insolvency practitioners.

The PPSR, which consolidated more than 70 different Commonwealth, state and territory registers into one national register and is aimed at improving the way businesses use their property to secure lending.

However, according to Krystiana Conomos, senior associate at law firm Holman Webb's commercial recovery and insolvency practice arm, there have been concerns raised by her clients over Section 64 of the Personal Property Securities Act (PPSA). Businesses in the building and construction industry have received 'Section 64' notices from banks and other financiers, which "provides a financier with a super-priority over suppliers," as told to the Australian Financial Review.

In short, if a supplier provides products to a customer on credit, the supplier is eligible to register their security interest (the interest on personal property in a credit-providing transaction). However if the customer has a debt facility with a financial institution, the financial institution receives priority over the proceeds of the products in the customer-supplier transaction in the case that the customer becomes insolvent.

This is known as a "super-priority" and applies to a retention of title or consignment arrangement that secures all or part of the purchase price, states PricewaterhouseCoopers. PwC further clarifies by stating that the security interest in this type of situation has priority over other security interests, regardless of when such other security interests are registered or acquired.

SMEs confused as to how this section of the PPSA works should consult legal advice or contact the PPSR here.

For more information see D&B's guide to PPSR.

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