Describing your collateral under the Personal Property Securities Act 2009 (“PPSA”) – what is required?

Nearly every person who has completed a registration on the Personal Property Securities Register will tell you that they were not 100% sure of what box to tick or how to describe the property (collateral) over which they are registering their interest. Not only is the process confusing and the online guidance limited, but the consequences of incorrectly completing a PPS registration are dire. In some instances, a mistake in the creation of a PPS registration will lead to the registration being ineffective and unenforceable!

By public demand, this article is designed to assist you in properly describing property on the PPSR.

First, it is noted that both the security agreement (e.g. the supply contract, guarantee document, terms of trade or other transaction document that grants a security interest in personal property) and the financing statement (the data registered on the PPSR by the online application for registration) must properly describe the property. The security agreement and the financing statement should be consistent in their description of the property. If a financing statement provides a broader description of the property than the security agreement, the registration may be found to be misleading and deceptive and deemed ineffective: s164 PPSA.

When a registration is created the registrant will have to choose the collateral class. The registrant is prompted to choose a class within one of the following four categories; Tangible Property, General Property, Intangible Property, Financial Property. This article focusses on registrations over Tangible or General Property.

Tangible Property

A security agreement that creates an interest in Tangible Property will deal with either: a motor vehicle, a watercraft, an aircraft, agriculture or other goods. Motor vehicles, watercrafts and aircrafts have been separated from other goods for a specific reason; these items of property are of a certain class of property that must be described by serial number: s153 of the PPSA.

Where the registration is created over consumer property that is an aircraft, motor vehicle or watercraft the property must be described by serial number. Where the registration is created over commercial property then certain types of aircraft must be described by serial number. However, where the registration is over commercial property that is a motor vehicle or watercraft the registration may (rather than must) describe the property by serial number. It is best practice to include serial numbers where the property is an aircraft, motor vehicle or watercraft regardless of whether the property is consumer or commercial. Providing this information will avoid potential disputes as to the validity of the registration.

Other goods do not need to be described by serial number. Accordingly, suppliers need not worry that each barcode for each item supplied to a customer must be described in a financing statement.

General Property

General Property is either all after present and acquired goods with no exceptions or all after present and acquired goods with exceptions.

Describing your collateral

Once a collateral class has been chosen the registrant may, depending on the class chosen, be given the option to further describe the property. Where the collateral class chosen is either other goods or all present and after-acquired property with exceptions the registrant will always be given the option to further describe the property.

Again, the registrant is not expected to provide a barcode or serial number for other goods. This information does not need to be included in the further description of the property. For security interests over other goods a registration will not be ineffective or incomplete if no further description is provided. However, the registrant may still choose to include general additional information in the box designated for further description. For example; some registrants may wish to briefly describe their property as for example printers, washing machines or wooden tables.

Notwithstanding that a detailed description or identifying barcode is not required for each piece of property to create a valid registration, secured parties should keep an internal record of property supplied to a grantor, with information sufficient to allow a third party to identify the property.

In Renovation Boys Pt Ltd (admins apptd) [2014] NSWSC 340 (225 March 2014) the Court confirmed that administrators will be permitted to exercise a lien over property in their possession (even where that property is subject to a perfected security interest) to cover their costs of identifying, allocating and distributing stock to the secured parties. In that case a 31% levy was to be paid by the secured parties before their stock could be reclaimed.

The more information that the secured party can supply when trying to reclaim their property from an insolvency practitioner the quicker, cheaper and easier the process will be.

Where the collateral class chosen is all present and after-acquired property with exceptions the registrant must provide a further description of the exceptions.

Ultimately, the PPSR is designed to be a public noticeboard to other persons considering dealing with particular personal property. A person should be able to, by a relatively simple search, identify any security interests in a particular item of property. Registrants should keep this in mind when creating registrations.

Having said this, in these early days (where registrants are new to the process of registering on the PPSR) care should be taken to provide enough information to comply with the PPSA, but at the same time remember not to over describe the property and risk that as a result the registration could be restrictive or be seen as misleading (and therefore maybe ineffective).

This was the outcome in the Canadian case Adelaide Capital Corp. v. Integrated Transportation Finance Inc. et al. (1994), where the secured party was granted a general floating charge over all the assets of the grantor. In registering their security interest the secured party made catastrophic mistakes that were found to limit the collateral secured. The secured party selected equipment, inventory, accounts and other as the collateral secured, however, the secured party also completed the further description box. In the further description box the secured party described 50 specific vehicles. By describing the 50 vehicles the secured party was found to have limited the scope of their registration. Their security interest was found to be perfected only as far as it concerned the 50 vehicles.

Whilst there are differences between the Personal Property Securities Act and the Canadian equivalent the aforementioned case sounds as a clear warning: If you are concerned about the validity of an existing registration or wish to create a registration please seek legal advice.