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Mitchell is the Managing Principal of Sharrock Pitman Legal. He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate and can answer all your questions related to probate.

For further information, contact Mitchell on his direct line:


CALL: (03) 8561 3318

The Personal Property Securities Register is the national register of security interests in personal property. Given that the PPSR affects many, if not most commercial transactions, it is important that everyone involved in business has a basic understanding of how the PPSR works.

The PPSR establishes a priority system for ranking different parties’ interests in property. Failing to consider the PPSR can lead to severe consequences. For example:

  1. If you buy an asset that has a security interest registered against it, and you did not notice the interest when you bought it, you could lose the asset to the party holding the security interest,
  2. You could provide an asset (e.g. by way of a lease) to a customer without registering your interest on the PPSR, only for the customer to go into liquidation and you lose the asset, notwithstanding the fact that you were the legal owner of the asset,
  3. A landlord could take a security deposit from a tenant, but not register their interest in the security deposit. If the tenant goes into liquidation, the landlord could lose the security deposit.

One of the most extreme examples of the consequences of making a mistake with the PPSR was where a lessor is said to have lost around $23 million under an asset lease arrangement because it failed to properly register its security interest in the assets that it was leasing, the lessee went into liquidation, and the assets vested in the liquidator to be distributed among all unsecured creditors, notwithstanding that the lessor was the legal owner of the assets being leased.

Basically, you should consider whether you need to register on or search the PPSR whenever you are:

  1. Taking or retaining an interest in personal property, and you are not in possession of that property, or
  2. Buying property other than property used predominantly for personal, domestic or household use and that is worth $5,000.00 or less, or property that is being sold to you in the seller’s ordinary course of business.

An example of the first situation would be where a wholesaler provides goods on credit to a retail store. An example of the second situation would be where a business buys another business.

How does the PPSR work?

The Personal Property Securities Register have their own site which can be accessed here.

There are two aspects to the PPSR:

  1. Secured parties (i.e. people having security interests) who register their security interests on the PPSR.
  2. Anyone dealing with property can search the Register to see if there are any security interests registered against the property they are dealing with.

What is personal property?

Most property that is not real estate will be personal property for the purposes of the PPSR. This includes:

Tangible property such as:

  • vehicles
  • machinery
  • furniture
  • inventory
  • stock
  • goods
  • livestock
  • crops  

Financial property such as:

  • shares
  • bonds
  • cash in bank accounts

Intangible property, such as intellectual property.

Land, buildings and fixtures attached to land and buildings are not personal property and interests over these assets cannot be registered on the PPSR. Crops, however, do qualify as personal property.

What is a Security Interest?

A security interest is an interest in personal property that secures the payment of a debt or performance of an obligation.

Examples include:

  • A loan secured by personal property
  • A hire purchase agreement
  • A retention of title or consignment arrangement
  • A lease of goods
  • Tenant’s installations
  • Money held as a security deposit

A security interest must be evidenced in writing.

Perfection and priority rules

A security interest that is perfected will achieve priority over subsequent registered security interests (except for PMSI’s), and will be enforceable against third parties and a liquidator.

The most important form of perfection for you to be aware of is perfection by registration. A security interest is said to be perfected when it is registered on the PPSR.

PMSIs

Purchase Money Security Interests are a special form of security interest. They arise where the security interest is over collateral to secure the purchase price of that collateral. They also arise with leases and consignments.

Most retention of title arrangements, hire purchase arrangements, and leases will be PMSIs.

A PMSI takes priority over earlier perfected security registrations.

For example, Company X borrows money from Big Bank and Big Bank takes a security interest over ‘all present and after acquired property’ of Company X. Company X later buys a car under a finance arrangement with Fancy Car Dealer. Fancy Car Dealer is able to register a PMSI over the car, which would take priority over Big Bank’s earlier registration.

Priority Rules

The Personal Property Securities Act regime creates the following hierarchy as to which party’s interest takes priority:

  1. Security interests perfected by control (e.g. banks having control over funds in accounts held with them)
  2. PMSIs
  3. Registered interests (with priority determined by time of registration)
  4. Third party purchasers for value and liquidators
  5. Unregistered interests

A party that fails to register a security interest will rank below the following:

  1. A party that has registered a security interest in the property;
  2. A liquidator (in effect, making an unregistered secured party an unsecured creditor if the grantor goes into liquidation)
  3. A third party that bought or leased the property from the grantor (whether or not they had knowledge of the unperfected security interest)

Time Limits

There are two key time limits to keep in mind, depending on whether you are registering a PMSI or a general security interest.

PMSIs

PMSIs must be registered:

  • Where the collateral is inventory, before the grantor obtains possession of the collateral;
  • Where the collateral is not inventory, within 15 business days of the grantor obtaining possession of the collateral.

If they are not registered in time, they lose their ‘super-priority’.

Other security interests

Ordinary security interests should be registered within 20 business days after the security agreement that gave rise to the security interest comes into force. Registering after this time does not affect their validity, but section 588FL Corporations Act 2001 (Cth) provides that where a security interest is registered outside the 20 business days but within 6 months of a company starting being wound up, the security interest will vest in the company and the secured party with lose the benefit of the security interest.

How we can help

If you are thinking the PPSR sounds confusing and complicated, you are right. It is unfortunately neither easy to understand nor intuitive.

So where should you start?

First, contracts, agreements and terms and conditions should clearly specific what security interests are being granted and each party’s rights and obligations with respect to those security interests. If you would like assistance reviewing your existing documents or preparing new ones, please do not hesitate to contact us.

Secondly, when you are entering into an agreement, you should see if you are granting any security interests over your own property.

Thirdly, it is critical to properly carry out searches and conduct registrations on the PPSR. This, unfortunately, is also not intuitive. Doing something as seemingly harmless as using an Australian Business Number when you should have used an Australian Company Number, or vice versa, can be fatal. To make matters worse, the PPSR website can actually be misleading in this respect. If you are unfamiliar with the complex rules around using the correct identifier for a party on the PPSR, or the correct collateral class, we recommend speaking to us and we can either complete the registrations for you, or provide you with training on how to complete your own registrations.

If you require assistance, please do not hesitate to contact us on 1300 205 506 or fill in the contact form below, and we would be happy to assist. We can conduct searches and registrations for your business, and also offer training to assist businesses who deal with the PPSR regularly to have proper guidelines in place.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.

Written by one of our lawyers

,

.

Samuel Ellemor

For further information contact

Samuel Ellemor

Samuel is a Legal Practitioner at Sharrock Pitman Legal.

He deals with areas of Commercial Law, Employment Law and Charities & Not for Profit Law. For further information, contact Samuel on his direct line (03) 8561 3316.

More on

Commercial Law

However, in this article we will set out the factors that influence how long it will take to obtain a Grant of Probate and to administer an estate in Victoria.

The basics

First things first: what is a Grant of Probate? A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will. Without Probate, the asset holders (say a bank or share registry) cannot be satisfied as who has the correct authority to receive the deceased's assets and may refuse to pay out.

Sometimes, for smaller estates or if assets are mostly jointly owned with a surviving spouse, asset holders might agree to release payment without requiring a Grant of Probate. This is usually on the basis that the person who receives payment promises to repay (or Indemnify) the asset holder if it turns out they paid to the wrong person.

If there is no Will, then you cannot obtain a Grant of Probate. Instead you obtain Letters of Administration. This is effectively the same, in terms of authorising someone to administer the estate, and would usually be obtained by the person who is the closest next-of-kin to the deceased.

“A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will.”

Timeframes for Probate in Victoria

In order to obtain a Grant of Probate, the Court needs to be given information about the assets and liabilities of the estate, the deceased person, the witnesses to the Will, the executors and the Will itself. An advertisement of your intention to apply for Probate must also be placed on the Supreme Court website for at least 14 days prior to any application.

Often, making enquires to obtain all the necessary information can take a number of weeks. Also, you will need the Death Certificate for the application for Grant of Probate and possibly for making proper enquires regarding the assets and liabilities. Waiting for the Death Certificate to issue can therefore add a few more weeks to the process. Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.

The Court itself does not take long to process the application (maybe another 1 to 2 weeks) and this is done 'on the papers' using the electronic Court filing system. This means you do not have to go to a court hearing. There is also a general discretion for the Court to issue a 'Requisition' asking that you provide more information before they process the application and this can delay matters.

“Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.”

So, here we are a few months after death and you finally have a Grant of Probate. It is important to remember that this is the start of the estate administration and not the end. For a very simple estate, you might only need a further month or so to cash the assets and pay them to the correct beneficiaries. However, it can often be more complex than that. Factors that determine the timeframe to administer the estate include:-

  • Some assets will take time to cash or transfer. For example, if selling a property, final settlement might be 60/90/120 days from the day of sale.
  • There is a 6 month period for challenges to be brought against the estate and executors must wait until this period expires before distributing the estate, if there is any risk that a disgruntled family member might come forward.
  • There might need to be final tax returns for the deceased or for the estate. Failing to wait for the ATO to process these could leave the executor personally liable for a tax bill.
  • You might need to advertise for creditors to come forward and wait for a period of months while this advertising timeframe expires. This protects the executor if they are unsure of all of the deceased's financial dealings and creditors.
  • It might not always be a good time to immediately cash estate assets. For example, the shares just took a nose-dive, do you still sell regardless of available price?

There is a general rule that executors have an 'executor's year' to complete the estate administration. This means that you should be aiming to have the estate finalised and distributed within 12 months from the date of death.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.

Need help with Probate?

Our expert legal team is ready to take your call!

Mitchell is the Managing Principal of Sharrock Pitman Legal. He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate and can answer all your questions related to probate.

For further information, contact Mitchell on his direct line:

DIRECT LINE: 
(03) 8561 3318

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For fifty years Sharrock Pitman Legal has made a significant and long term contribution to meeting the legal needs of business owners and residents in the City of Monash and greater Melbourne area.