Remember, the PPSA is all about security; if you have security you better register it on the PPS Register if you want to rely on it on your borrower’s insolvency.
You also know how hard it is to get a loan from a Bank without a sufficient level of security and if you do get the facilities, the Bank will get security over all your business and often personal assets.
Why should you be any different? Often in business, you create a loan but don’t document it and usually don’t bother with security. Why?
These are just some of the everyday examples we see:
- Shareholder’s or Director’s lending money to their business;
- Relatives lending money to each other, their businesses, their children’s/grandchildren’s businesses;
- Friends lending money to friends;
- Business to business loans (particularly related party loans).
Often these loans go undocumented, unsecured and almost always, aren’t registered on the PPS Register.
There is one, monster reason to document, secure and register your loans, it’s asset protection ‘101’.
If I slip my liquidators ‘hat’ on I’ll show you a very typical example:
- Jan and Bob have borrowed $250k from their parents to start their new business.
- They’ve acquired machinery and several delivery vehicles.
- They’ve been trading for 3 years when Bob falls sick, business falls off and suddenly they are in financial trouble.
- Realising the problem, Jan and Bob have no alternative than to appoint Voluntary Administrators.
- The financial position is not good – with liabilities of over $600k and assets of only $200k, creditors will be lucky to get back 25 cents in the dollar.
The two scenarios for the parents are:
- Rank as an unsecured creditor with all the other creditors and recover a quarter of their money; or,
- Rank as a secured creditor with priority over the other creditors and recover around three quarters of their money.
And the difference between the two scenarios? A loan document incorporating security and the registration of the security on the PPS Register.
Documenting and then registering your security is absolutely critical; unless you register your security, you’ll lose it on the borrower’s insolvency/bankruptcy, and not be able to enforce it.
We can help you with your security documentation and of course, its registration on the PPS Register. It’s what we do.