Australian companies are exposing themselves to the unnecessary risk of losing multi-million dollar assets, according to leading legal experts. Despite only taking several minutes online, and costing less than the morning newspaper and cup of coffee, many businesses are failing to protect their legal rights of ownership.
The Personal Properties Securities Register (PPSR), a single national registry, allows businesses to protect their legal stake in personal property. Personal property takes on many forms from crops, aircraft, patents to equipment and is often most at risk when provided under a leasing or consignment agreement. But despite the ease, low cost, and importance of registering an interest, Australian businesses risk derailing their entire business by failing to do so, according to GlobalX Legal Solutions, a leading provider of PPSR registration and search services providing fast access to clients through its suite of innovative software solutions.
The threat is real
GlobalX CEO Peter Maloney said recent legal cases highlighted the importance of protection considerations, with Australian companies at severe risk of losing valuable assets for failing to register their own interests on the PPSR.
The national register came into effect more than five years ago, but Mr Maloney said many businesses were yet to realise the significance and potential damage of not registering assets or retention of title interests.
“In the recent Forge Group Power Pty Ltd v General Electric International Inc case, General Electric lost $50 million of leased assets after Forge went into liquidation. Despite owning the assets, General Electric failed to make a registration on the PPSR to perfect their interest as the lessor,” he said.
“This expensive failure to register by a multi-national should send warning bells to leasing businesses of the fundamental importance of ensuring PPS registrations are in place.
“The Forge v General Electric decision serves as a timely reminder to all lessors of the inherent value of registering, highlighting the detrimental consequences of failing to do so.
“It is hard to comprehend how companies with hundreds of millions of dollars in assets forgo this simple step; a mistake that has the potential to derail an entire business.
“There is a perception that the registration process is time consuming, complicated and expensive, but protecting assets and security interests is simple, quick, and something that legal advisors and businesses alike can do.”
No room for error
Leading law firm Minter Ellison partner Nick Anson said the Personal Property Securities Act had created a ‘perfect or miss out model’ where businesses who failed to correctly perfect an interest by registering a financing statement would lose out on their claim.
“The Australian Financial Securities Authority’s most recent report on PPS registrations list more than eight million active registrations, with 507,895 listings created in the March quarter alone,” Mr Anson said.
“While these figures are encouraging, many businesses are still neglecting to take appropriate measures to secure their assets, with many still unaware of the ramifications of failing to do so.
“There were 1,968,953 searches conducted on the PPSR in the March quarter 2016, which is a 6.4 per cent rise compared to the March quarter 2015.
“It is reassuring that the many people understand the importance of due diligence and searching for perfected security interests, but it is equally imperative that businesses ensure all steps are followed so they are protected against the risks of suppliers or counterparties becoming insolvent.
“Companies should review their terms of trade and if they are relying on a security interest (such as retention of title) they should ensure they are properly protected.”
Mr Maloney said the legal community would be watching the industry closely as the current economic climate was resulting in companies going into liquidation and bringing PPSA cases to fruition. “Recent cases have highlighted to many the major risks of failing to properly register on the PPSR and businesses need to beware of the potentially devastating consequences.”