The PPSA for Dummies – Hiring, renting, leasing or bailing equipment? Don’t let the liquidator walk away with your property.
Simon Read, founder of PPSAdvisory, is helping unravel the mystery of the PPSA and why it’s so critical you appreciate its application to your or your client’s business.
It’s a big topic so we’re breaking it down into “bite sized” pieces, identifying the five principle ways in which the PPSA is likely to have application to your business:
- Business loans;
- Selling goods/materials on credit to your customers
- Leasing or renting equipment to customers
- Asset protection structures
- Buying/selling businesses
Remember, the PPSA is all about security; if you have security you better register it on the PPS Register if you ever want to rely on it.
But what’s the PPSA got to do with the equipment you hire/rent/lease to your customers? After all, you own the equipment , so what’s the issue?
You’ll recall the old saying “possession is 9/10ths of the law”, well the PPSA now makes this true. Forget the concept of ownership, rather, think about ‘possession’. If someone is in possession of your equipment you might be at risk of losing the equipment on their insolvency.
You have to see this in action to truly understand it.
- Ozzie Forklifts hires a forklift to its customer, Rogue Transport.
- The hire meets the definition of a ‘PPS Lease’.
- Ozzie hasn’t bothered to comply with the PPSA.
- Rogue Transport collapses into liquidation.
- Under the PPSA, Ozzie’s interest in the forklift becomes Rogue Transports on the appointment of the Voluntary Administrator. Rogue get to keep the forklift.
Sounds incredible but hundreds of millions of dollars of equipment must have been lost since the introduction of the PPSA and continues to be lost.
The answer is simple, comply with the PPSA. Whilst creating the problem, the PPSA also provides the solution. If your hire/rental/lease or bailment of equipment is a ‘PPS Lease’ the PPSA allows you a security interest in your equipment. Remember, if you have security you need to register it on the PPS Register.
Simply, if Ozzie Forklifts had registered its security in the forklift it would not have lost it on Rogue Transport’s collapse. One, $6 registration against Rogue would have protected Ozzie for 7 years of ongoing hires between them.
So, when is your hire/lease or bailment a PPS Lease? This area of the law has been amended several times and is NOT as clear as many would have you believe.
Generally, a lease/hire or bailment of equipment for a term of less than 2 years is NOT a PPS Lease and accordingly the PPSA won’t apply. Your equipment will not be at risk.
But (and there’s always a ‘but’) there are traps for the unwary. For example, if you provide equipment to a business who will on-hire or cross-hire your equipment you can be exposed. Or, if your agreement allows for the ‘rolling’ of the hire term, you’re likely to be exposed.
Please, if you hire, lease, rent or provide equipment on bailment, speak with one of the PPSAdvisory team to determine whether the PPSA is going to apply.
Please remember this is not legal advice, we are not lawyers and the information is provided for general guidance only. Readers should obtain confirming legal advice before acting.