Are you thinking of selling a business? Usually, a vendor of a business agrees to sell the business to a purchaser free of any encumbrance. Similarly, if you are buying a business, you need to be sure that all assets which form part of the business are owned by the business and that a third party does not have an interest in those assets which you are buying.
What is the PPSR?
This is where the Personal Property Securities Register (PPSR) becomes vital. The PPSR is a national online database which shows whether someone is claiming a security interest in specific ‘personal property’.
Under the relevant legislation, ‘personal property’ is defined as any form of property other than land, buildings or ‘fixtures’ which form part of the land legally. It can include tangible items (such as machinery, tools, vehicles, stock and crops) and intangible items (such as intellectual property like trademarks).
A person or company which has an interest in personal property can list that interest on the Register – the PPSR alerts anyone thinking of obtaining an interest in the particular property to that pre-existing claim. Interests remain on the Register until ‘released’, that is, until they are paid out.
Basically, if a business has any leased plant and equipment, has received goods from suppliers on credit or has received financing at any time, then there will probably be security interests registered against the business’ assets.
Why is it important to the sale and purchase of a business?
For a vendor, it is imperative that their lawyer conduct a search of the PPSR as soon as possible to find out what security interests are registered over a business’ assets so that they can start work on arranging releases before the date for the settlement of the sale. For a purchaser, a search of the PPSR by their lawyer will show what releases can be expected to be received before or at the settlement of the purchase.
It is never too soon to conduct searches of the PPSR – if property registered on the PPSR is not discovered until close to or even at settlement of a sale or purchase of a business, you run the risk of settlement of the sale being delay and increased legal costs. A vendor of a business may find that the sale falls through. A purchaser may end up purchasing a business the assets of which are subject to existing debt and may be repossessed.
It is our standard practice to conduct searches of the PPSR in all sales and purchases of businesses. Contact us for advice and assistance with all your business sales and purchases.
Please note, the above contains very general information on the subject matter and should not be regarded as legal advice. Legal advice should always be sought as to your specific circumstances.