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If you own a business, you’ve probably come across terms like ‘security interest’ and ‘Personal Property Securities Register (PPSR).’  Whilst the terms can be confusing, they are important and the importance is often overlooked in business transactions. This article explains key information about the PPSR to take into consideration when buying or selling a business.

What is the PPSR?

The PPSR is a national online register that records security interests in personal property. A security interest ensures a borrower of personal property (such as stock) will pay the debt or fulfill an obligation relating to the personal property.

Common types of personal property associated with a business include:

• stock under a supplier agreement
• equipment such as dispensing robots. telephone equipment and label printers under a hire purchase or rental agreement
• motor vehicles under a lease agreement
• franchise related fixtures and fittings under a franchise agreement
• floating interests over all property in the business, usually in favour of the bank which provided funding for the initial purchase of the business. Floating interests are interests which don’t attach to any particular property and which ‘hover’ over the business until an event of default, when they then attach to the property in the business at the time of the default.

The PPSR is not used to register security interests over land or buildings. However, its purpose is like a bank securing a mortgage over a house. A security interest holder, like a supplier or wholesaler, uses the PPSR to prioritise its legal right to repayment or repossession of the property if the business defaults under the agreement to which the security interest relates.

Considerations When Buying and Selling a Business

A business is usually sold free of all encumbrances, including personal property listed on the PPSR. This means the seller must pay all debts and arrange the discharge (or release) of the security interest registered on the PPSR on or before settlement of the sale.   Practically, this means closing and paying out accounts, like supplier accounts, before settlement.

For buyers, it’s equally important to ensure all security interests are released on or before settlement. Otherwise, the buyer risks inheriting debt or having stock and equipment repossessed by the security interest holder, which could significantly impact the ongoing operation and profit of the business.

Managing Security Interests and the PPSR

There is a process for managing the discharge of personal property from the PPSR.  It involves liaising with multiple people, obtaining payout amounts, ensuring timely payment and formally requesting the discharge of the security interest from the PPSR. This process can take a few weeks. Therefore, it is important PPSR searches are conducted early in a transaction so parties are aware of what security interests need to be released and can work on obtaining the releases in time for settlement.  If there is a delay in obtaining a release, settlement may be delayed. 

The PPSR serves as a valuable tool for suppliers and lenders to record ownership of stock and equipment used in businesses, ensuring the security interest holders’ legal rights are protected.  Understanding the PPSR is crucial for business owners.  Without a basic knowledge of the PPSR, business owners risk delays to transactions and potential impacts on their financial position.