The Personal Property Security Register (PPSR), introduced in 2012, heralded an important change in commercial law.
The purpose of the PPSR was to amalgamate all of the various registers of security interests against business assets (not land) into one central register.
As you can imagine, much has been written about PPSR, but in this this article we aim to simplify what it is and how it is important in the buying and selling of accommodation businesses.
When buying and selling said businesses, the importance of the PPSR lies in arranging the PPSR releases for completion.
Typically, in every business sale the vendor agrees to sell the business to the purchaser free of all encumbrances. This means that the vendor will need to arrange to pay out all creditors of the business who are holding a security interest over the business assets.
There are many different types of security interests, which can be registered (i.e. equipment leases, supply agreements, financing agreements) and over different types of assets (i.e. certain identifiable assets like motor vehicles, all present and after acquired property like trading stock) and this can be confusing.
The important thing to remember is that if the business has any leased plant and equipment, received goods from suppliers on credit or has received financing at any time then there will probably be registered security interests against the business assets and registered on the PPSR. In any event, a quick search can sort out whether there are any registered security interests on the PPSR.
For the vendor it is important that their solicitor undertakes a PPSR search as soon as possible so that they can find out what security interests are registered and start working on arranging releases before completion.
For the purchaser, the PPSR search will show them what releases they can expect to receive before or at completion to ensure they are getting a good title to the business assets free of any encumbrance.
If the vendor is able to pay out, or has already paid out whatever finance arrangement gave rise to the security interest before completion, there will usually be time for the secured party to register a release which can be searched. However, in some circumstances the secured party will be receiving payment at completion (i.e. there will be a cheque payable to them and collected at completion).
In these cases, there is pro-forma release and an undertaking to amend the registration document that can be provided to the purchaser at completion, which shows the secured party has no further interest in the business assets and that they will register the release after completion.
In some cases where the vendor also carried on other businesses there can be registered security interests, which relate to business assets not being sold with the business or financial arrangements not connected with the business.
In those cases, it is important for the vendor to provide sufficient evidence to the purchaser to show the vendor is selling the business assets unencumbered as required by the contract.
How this is done varies depending on the circumstances, but it is important to address PPSR registered security interests early so there is time to resolve any issues prior to completion.
PPSR releases are important for both vendors and purchasers. A failure to make proper arrangements early in a matter can result in problems and delays with completion and increased costs in a matter.
The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.