Security interests: Why do I need to protect them?
Businesses deal with security interests every day. If you buy, sell, lease or hire goods, you are likely dealing with security interests in personal property. However, many businesses are unaware of how to protect their interests, especially when their customers fail to pay, or go bankrupt. This article explains what security interests are and how you can protect them legally.
What is a security interest?
A security interest is an interest over another person’s property to secure a debt or other obligation owed by that person. The security interest means that you can take the property if the debt or obligation is not met.
If you buy, sell, lease or hire goods, it is important to properly protect your security interests over the goods. This way, if the business you are dealing with fails to pay, or runs out of money, you are not left out of pocket. In most cases, registering your security interests on the PPSR means you can get your goods, or at least the value of them back if a situation like this arises.
How do I protect my security interests?
Businesses can protect their security interests by using the Personal Property Security Register (PPSR). This involves registering your interests on the PPSR and conducting regular searches on the register when dealing with customers and other businesses.
It is also crucial to have well-drafted agreements with your suppliers, distributors and customers, which protect your security interests. This includes having retention of title clauses within your agreements, stating that title to the goods remains with you until they have been paid for fully.
Importantly, contractual agreements may not protect you adequately if the business you are dealing with goes bankrupt before you are paid and your interests are unregistered. In these circumstances, someone with a registered security interest will have priority in getting their goods or the value of them back from the bankrupt business.
For the best chance of protecting your security interests, businesses should register their interests on the PPSR and have well-drafted contracts limiting their risk.
How is the PPSR relevant to my business and security interests?
The PPSR is a national online register for security interests in personal property. Using the register can protect your business in two main ways:
- When buying or acquiring goods, you can search the PPSR to see whether someone else already has a registered security interest over them. This can help you make an informed decision about your purchase, as prior registered interests may mean that someone can repossess your goods even after you have purchased them.
- When selling, hiring or leasing goods, you can register your security interests on the PPSR to protect yourself if your customers fail to pay, or go bankrupt. Having a registered security interest means that you have priority in getting your goods or the value of them back in these circumstances.
What is personal property?
The PPSR is only relevant for personal property, that is, property other than land, buildings and fixtures. Personal property includes things like goods, cars and other vehicles, intellectual property like trade marks and copyright, shares, commercial licences and livestock.
Key takeaways
- A security interest is an interest over another person’s property to secure a debt or other obligation owed by that person.
- Businesses can protect their security interests by having well-drafted contracts and using the Personal Property Securities Register (PPSR)
- Businesses should conduct regular searches on the PPSR to help protect their assets.
- Businesses should register their interests on the PPSR to protect themselves in circumstances where customers fail to pay, or go bankrupt.
How can Gladwin Legal help?
Gladwin Legal are experts in advising businesses, from start-ups to established companies. We can help with:
- Reviewing your current contracts and policies to see whether they adequately protect your security interests
- Drafting new agreements with your suppliers, distributors and customers which help protect your security interests
- Registering your security interests on the PPSR
- Conducting regular searches on the PPSR in relation to your security interests