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Impact of PPSR on The Acquisition or Sale of a Business

The Personal Property Securities Register | PPSR | records third party interests in personal property used in a business premises. A third party is a person (which includes a corporation) to whom the owner of the personal property has granted a charge over the personal property. In Australian these interests are usually registered on the PPSR. A third party interest in real property is an interest charged over Land and is recorded in the form of a Mortgage or Caveat at the Land Registry Office.

Assets of a business can include plant and equipment, motor vehicles, fork lifts, computers (hardware and software), trademarks, trade debtors, stock, security bonds held with suppliers. Fixtures like a cool room which usually become part of the real estate may (with an authority to remove on a make good basis) be included as personal property.

If you are selling the business all these items should be identified in the Sale Contract for the purchaser to verify your title, prepare ownership transfer documents and notifications to relevant authorities.

If you are buying the business you will want certainty no third party interest will exist following purchase. A PPSR search identifies assets for any third party interest. The Vendor will be required to remove the charge over the asset before settlement. If you are financing the purchase; your financier will verify clear ownership at settlement and will usually register a charge over your business entity and its personal assets on the PPSR.

The Sale Contract should include a warranty to obligate the vendor to remove any security interests registered over the personal property from the PPSR. This will ensure property being purchased is free from any encumbrance; and
The purchaser should also receive written confirmation from the secured party they do not require or have an interest in the particular security any longer.

Application to Supply Agreements

A supply agreement contains the terms and conditions upon which a supplier supplies specified goods or services to a buyer over a specific time frame and at a fixed price. The buyer agrees to purchase such goods or services exclusively from the supplier. Supply agreements generally involve the supply of goods to a customer on credit terms. Most suppliers retain title to their goods until the full purchase price is paid in full. This ‘retention of title’ is creates a security interest requiring registration under the PPSR. Registration extends to the proceeds of sale of the goods when the interest becomes a purchase money security interest | PMSI | gives the secured party a higher status over other interests against the goods and their sale proceeds. The PMSI holder’s interest must be satisfied before any unsecured parties in the event of insolvency.

A security interest is “perfected” only by registration before delivery of the goods. Customer insolvency or registration of another secured interest before registration of the interest is fatal.

Registration Process

For assistance with a PPSR registration or checking you have an effective registration process or Terms & Conditions in your supply documents contact our Business Law team. Part 1 of this article on PPSR Overview and Commercial leases can be read here by clicking on the link.