Advantages and hazards in store for farming and agriculture as the Personal Property and Securities Register deadline approaches

Posted on Jan 18, 2014 by Jasmin Thompson   |   Categories: Commercial & Business Law, Personal Property Securities Register

The Personal Property and Securities Register (PPSR) has been in force for close to two years but farmers and other rural stakeholders may not be aware of the consequences that the register has on agribusiness, writes commercial lawyer JASMIN THOMPSON.

The PPSR is a register for all security interests that are not real property. Personal security on a farm can include crops/produce; livestock; unborn young of livestock; products derived from livestock; motor vehicles; agricultural equipment; machinery; and so on.

The register’s implementation is having a huge impact on the law relating to personal securities, particularly rural and agricultural arrangements. If you are a farmer it is important to understand who may have a claim over items on your farm, how that claim may be enforced, the consequences of providing your property to a person on loan, and whether a third party can claim over that property.

Compliance deadline approaching 31 January 2014

The PPSR has been in force for almost two years, but the Personal Property and Securities Act (2009) (the Act) has allowed a 24-month transitional period to complete the migration which ends on 31 January 2014, so it is important to act quickly to ensure the PPSR is accurate and your interests are secure.

The PPSR encompasses a large volume of pre-existing registers with similar purposes, for example: the ASIC register of company charges, the co-operatives register of charges, motor vehicles securities (known as REVS in New South Wales), crop liens and stock mortgages. The entries on these registers are now part of the PPSR.

Advantages of the new PPSR for farmers

The PPSR should make lending to agricultural producers more attractive to financiers as they are able to register an interest in a range of securities not available previously, and therefore have more certainty over personal property.

The Act includes specific provisions for the agricultural industry, including affording special priority to security interests granted to enable crops to be produced and livestock to be fed and developed. Therefore, where a bank lends money for the purchase of particular goods to be used for growing crops, such as seed, fertiliser and pest control, the bank will have priority over another financier’s general security interest. This means banks and financiers should be more willing to provide finance for these particular goods because their security interest ranks ahead of another pre-existing interest.

However, the bank and finance providers who operate a business relating to the provision of security would be well versed in the Act, its requirements and obligations, and are more likely to have correctly carried out their obligations to ensure valid interests in securities on the PPSR. If a farmer who may have a security interest does not realise or understand their obligations, and therefore does not register their interest correctly (or at all), the farmer could be left with nothing from the security interest.

Risks associated with delaying registering with the PPSR

If you are a person that has an interest in property but does not have possession, such as cattle on agistment (for more than one year or for an undetermined period), gone are the days where you may have been able to enforce a handshake agreement, or even if you have an agreement as to your security in an item, these days a security agreement in appropriate form and a registration on the PPSR are both required to protect your security.

The register has significantly altered the law of personal property securities including how securities are dealt with, how to decide ownership and which party has priority to a security interest if there is a dispute, if the security is disposed of by the borrower without the owner’s knowledge or a company enters administration.

The premise of the PPSR is that registration of security interests on the register is the primary basis of establishing entitlement in that security. Ownership is now essentially irrelevant under the PPSR.

Relevant PPSR transactions

The laws impact such arrangements as agistment, bailment, leasing, licensing, liens, mortgages and other collateral arrangements.

The leasing of machinery can be risky for famers, as it is very often the case that equipment is provided to neighbours or similarly connected parties and no formal arrangement is in place. The farm still needs to recognise the potential risk regardless of the connection and register the interest. If the equipment is not in your possession and is not registered it has the potential to create issues, as in the case example below.

Another transaction that may be relevant is ‘retention of title’ clause on goods supplied. If a farm supplies their produce, say grapes to a winemaker, and the supply of those grapes is subject to terms of payment of 30 days and the agreement states the grapes remain the property of the farm until full payment is received. This is also considered a security interest in the produce supplied therefore the farm would need to register on the PPSR. The registration can be worded in such a way that the registration can continue for future supplies as well, which saves the impracticality of creating a registration with every single supply to a customer.

Consequences of not having a valid PPSR registration

The consequences of not having a valid registration can translate into not having any security interest at all.

In Australia the laws are recent and therefore have not been applied to many cases, but the New Zealand and Canadian legal systems have similar structures from which we can gain some guidance.

In the New Zealand case of NZ Bloodstook Limited v Waller and Agnew (CA 269/04), a stallion was leased to a farm, and the owner of the stallion thought it would be able to have the stallion returned at any time. However, the owners of the stallion did not register their interest in the stallion on the register.

The farm went into administration and receivers came in to assess the business. The bank had a registration over the farm’s property for “all present and future assets” and the creditor wanted to sell the personal property on the farm to call in its security interest. While it was clear Bloodstock was the owner, the court found the registered interest took priority over the stallion’s owner’s unregistered interest. Therefore the owners of the stallion lost their right to reclaim the animal or recover the money from the proceeds of its sale.

How to protect your interests

You need to act now – timing is everything! For example, if there are multiple registrations that have competing interests over the same property, then the timing of the registration will also be important to assess which one should be given preference, or priority, for payment.

  •  While it is absolutely vital to register your interest, it is also important to do it sooner rather than later particularly before the end of the two year transitional period on 31 January 2014.
  • Evaluate what arrangements you currently have in place that should be registered. This involves a detailed review of all operations of your business.
  • Undertake an assessment of the security interests registered against you by conducting a search of the PPSR.
  • Act immediately to rectify any registrations that are inaccurate. It will be to your detriment if you assume your prior registrations were migrated to the PPSR successfully. As a grantor or grantee, it is your responsibility to ensure registrations have been migrated properly, and to correct any errors, otherwise you risk losing your claim.
  • The security interest should be registered as soon as possible, as your priority in favour of the other party is closely linked to when in time the security interest is registered not when an agreement is entered or goods are delivered. This may involve executing a written agreement before registration can occur.

This process may vary greatly depending on the type of business being conducted therefore it is recommended an accountant and/or lawyer would be best utilised during this process of review of asset and registration of security interest.

If you wish for some assistance, please contact Baker Love Lawyers.