The PPSA’s role in risk management

Xander van der Merwe Co-Founder

PPSR Cloud

An appropriate risk mitigation strategy must include consideration of the Personal Property Securities Act (PPSA), if not, the strategy is not complete.

Credit risk is a critical issue for all businesses. To reduce their exposure to credit risk, suppliers, lenders and equipment owners often employ a variety of strategies and tools to protect their interests and ensure they are compensated in the event of default.

The Personal Property Securities Register (PPSR) can be an effective tool for managing credit risk. The PPSR is a national online database in Australia and New Zealand that allows individuals and businesses to register and search for interests in personal property, such as vehicles, boats, aircraft, artwork, and other movable goods.

The PPSR is an important resource for managing credit risk in personal property transactions. It helps to reduce risk for lenders, creditors, and equipment owners, while also providing useful information for borrowers to make informed decisions. By utilising the resources and capabilities of the PPSR, businesses can take steps to protect their interests and reduce their exposure to credit risk.

An established way to mitigate risk is to secure against it. A bank will take security against the risk their borrower defaults, why don’t more businesses require security for payment?

Security for Payment

What better way to mitigate risk than secure against it?

z If you lend money, take security over the borrowers’ assets.

z If you sell goods on credit, take security over the goods themselves and/or over the customer’s assets.

z If you provide services, take security over the output of your service and/or over the customer’s assets.

And if you have security you must comply with the PPSA if you want to use it when your counterparty collapses into insolvency. Think of compliance with the PPSA as simply ‘turning on’ your security. By registering your security on the

PPSR you ensure you can use it in the event of your customer’s insolvency.

Registration preserves your security and your ability to enforce it. Fail to register or register correctly, and you lose your security on your customer’s insolvency, the very moment you really want to enforce it.

Types of Security

The type of security you take depends on the nature of your business: z Whenever money is lent, take security over the borrower’s assets. z If you sell goods on credit, retain title to those goods until you receive payment (simple, traditional retention of title). z If you provide a service think of how you could secure payment over the product of your service (e.g., design plans if you’re an architect or engineer). z If you hire out equipment as a PPS Lease, you’re deemed to have a security interest in the equipment (so you better register it if you want to keep your gear). z No matter what your business is, you may consider taking security over your customer’s assets.

Securing against credit risk is an essential element of any businesses credit mitigation strategy. Correctly registering your security on the PPSR Register is another essential element, often overlooked.