When the time comes to sell your business or company, there is a lot to think about. The process can sometimes be complicated and there are many things to consider – organising a change of contracts with suppliers or customers, any requirements under leases you may have, what to do with employees, any conditions precedent to the sale, transition periods and restraints. The list goes on.
One thing that sellers (and prospective purchasers) can often forget about is any registrations on the Personal Property Security Register (PPSR).
What is the PPSR and what are PPSR registrations?
The PPSR is an official government register in Australia which allows an interested party to register a security interest over another’s property (a PPSR registration). Akin to a record of a bank registering a mortgage on your property when you borrow money for its purchase, PPSR registrations are also known as, and often referred to in sale contracts, as an ‘encumbrance’ and/or ‘security interest’.
Security interests in the context of a PPSR registration can include (but are not limited to) registration over specific items such as motor vehicles, equipment or a specific asset, or it could be a registration over all of the present and future property owned by a person or business/company.
Importantly, PPSR registrations can only be registered with consent of the grantor (i.e. the person, business or company the registration is placed over). If a grantor hasn’t consented to a PPSR registration being lodged, it may be invalid.
When might a PPSR registration be lodged?
A PPSR registration is typically lodged as a public declaration that the party registering the PPSR registration (secured party) holds an interest in the grantor’s property, providing the secured party with a priority to be repaid or to have goods returned in certain circumstances. For example, PPSR registrations commonly arise out of loaned money, a shared asset, or in the context of a supply of goods or services provided by one party to another.
Why does the PPSR matter in the context of my business or company sale?
When you sell a business or company it must be sold without any encumbrances attached to it unless your purchaser agrees that the encumbrance can remain.
When you are in the initial stages of preparing your business or company for sale, it is important that you (or your legal representative) conduct PPSR registration searches over the ‘vendor’ party and the business or company to ensure that you are aware of any PPSR registration that may impact your sale.
A PPSR registration search will tell you who has a registered security interest over you/your business/company and whether they are securing a specific asset or you generally. It will also provide you with the contact information of the secured party.
After conducting a PPSR search you may find that there are registrations that can be removed immediately. For example, if a supplier you no longer use or have an obligation to didn’t remove their registration, you can reach out to them to have it removed. You may also find that you need to reach out to a secured party to find out what their requirements are for their PPSR registration to be removed.
Our tips
- Get on top of your PPSR registrations early – you may find that one or two exist but shouldn’t. You may also find registrations that you weren’t aware of and may require further investigation.
- Always reach out to secured parties as early as possible in the sale process to understand what their requirements are for a PPSR registration to be removed. Getting a PPSR registration removed can sometimes take time. Allow yourself as much time as possible – removal of PPSR registrations are a common cause of a delayed settlement.
- If you’re purchasing a business or company, be sure to obtain a PPSR search over the vendor and business or company’s ABN and ACN to ensure you are aware of any PPSR registrations that the vendor may need to action.
- Even if you’re not selling your business or company, it’s good practice to check any registrations routinely to make sure you’re aware of any security interests registered.
Do you need any advice regarding PPSR registrations or selling your business or company? Get in touch with KKI’s Commercial Team.
