Efficient Financing: PPSR Traps

This article highlights the value of undertaking an early review of the Personal Property Securities Register (PPSR) to ensure there are no potential handbrakes on your financing transaction.

As part of the due diligence process, clients are often surprised to learn that the lender has identified a significant number of financing statements registered on the PPSR against the borrowing entity or related entities who will be guarantors/security providers. Many of those financing statements will relate to previous suppliers or financiers (and should have been removed years ago) or are registrations which do not correctly reflect the collateral or secured obligations.

As a result, one of a number of recommendations we make to clients who are preparing for financing is to review (as early as possible) searches of the Personal Property Securities Register (PPSR) in respect of each entity who will be a borrower, guarantor or security provider to identify if any non-current or improperly registered financing statements can be removed. While removing non-current or improperly registered financing statements is often non-contentious, it does take time and require third parties, who have no vested interest in the borrower’s financing timetable, to assist.

Dealing with these outdated and incorrect financing statements at the beginning of (or prior to) the financing process ultimately assists with streamlining the documentation process, eliminates additional (and often unnecessary) due diligence enquiries from lenders and helps to expedite the financing process so that financial close can occur as anticipated by the parties.

Lenders will not expect that every security interest (and financing statement) is removed but will want to clearly understand the nature of all security interests granted by the borrower and guarantors and will seek to agree a defined list of security interests which will be permitted to remain going forward. The types of financing statements which lenders might expect to remain registered will vary depending on the industry and business being financed.

If financing statements are identified which are no longer current or which are improperly registered, we suggest:

1. Try to contact the secured party by phone and request that the financing statements are removed and/or amended. If the security interest has expired or has been registered in respect of an incorrect collateral class, the secured party may agree to remove/amend the registration following a call.
 
2. If the secured party is uncontactable or, after being contacted do not agree to remove the registration, the Personal Property Securities Act 2009 (Cth) (PPSA) has an administrative process which can be followed to remove the registration. This process starts with the issue of an Amendment Demand by the grantor requesting that either the registration is removed, because it no longer (or never did) secures an obligation of the debtor to the secured party, or that the registration is amended because it inaccurately reflects the security interest.