Personal Property Securities Registrations and Sales of Businesses
Posted on November 10, 2015
The practical implications of Personal Property Security Registrations (PPSR) need careful consideration in the sale of a business. As a reminder, the Personal Property Securities Act 2009 introduced the legal framework for a national scheme for registration of securities over most forms of personal property. This scheme replaced state based registrations of things such as Bills of Sale and also Corporations Act Securities. A recent transaction we were involved with provided some significant challenges.
Background
We acted for the purchaser of a very substantial business which was owned and operated by vendors as managers and trustees for a joint venture. The joint venture comprised multiple parties. Although the vendors were the legal owners of the business assets, the joint venturers were the real owners (“the beneficial owners”). PPSR searches showed that there were multiple security interests registered over the vendors. Many of these securities were over all present and after-acquired property (“APAPs”). Thus, these securities had to be released completely or the business assets our client was buying had to be released at settlement from the securities. However, there were also multiple security interests registered over the joint venturers, many of which were also APAPs. As the joint ventures were the real owners of the business, it was to be expected that the joint venturers would have given securities over their beneficial interest in the business assets for business borrowings. Indeed, as details emerged, that was confirmed. With some 30 security interests registered over the joint venturers it was no easy task to obtain releases before settlement.
One of the other practical difficulties that arises in such situations is that a search of the PPSR does not give a purchaser information whether a security interest relates to the assets of a business a purchaser is buying, or whether it may relate to other assets of a vendor. In the case of security interests over other assets often described by class rather than an APAP, that is not often evident. Therefore, a purchaser needs to be very careful to ensure that the assets being acquired are free at settlement from security interests.
PPSR Release Document
The Australian Bankers Association and the Australian Finance Conference have adopted a protocol and a recommended PPSR release document. In our experience this release document has been broadly accepted and is used extensively by financiers when releasing security interests. Effectively, this form of release includes an undertaking to register a financing change statement on the PPSR within 10 business days.
For a long time it has been normal conveyancing practice to hand over original signed documents at settlement relating to transfers of assets, title and releases of securities. Even if original documents are not strictly necessary, copies and emailed documents are more open to doctoring, fraud or forgery. Thus it is best practice to insist on original documents to assess any defect in authenticity or the execution of the document. While it is tempting to not adhere to this practice for reasons of expediency, it is not a practice that is recommended. Indeed, the ABA/AFC protocol mentioned above states that the secured party should provide the executed release at settlement.
Summary
In transactions involving sale of assets subject to PPSR interests, representation of a purchaser involves careful attention to ensure assets are acquired free of any unintended adverse security interests. If representing a vendor, similar care and considerable effort may be required to ensure a vendor meets its obligation to pass ownership free of security interests at settlement.
