Buying or Selling a Business? Why Checking the PPSR Matters

Introduction

Whether you’re buying a business or selling a business, one of the most important steps involves checking for any security interests registered on the Personal Property Securities Register (PPSR). However, this check is often overlooked.

Failing to confirm whether there are registered security interests on the PPSR can have significant consequences for buyers and sellers, particularly when certain assets such as equipment, stock or intellectual property is subject to registered security interests.

Determining whether there are registered security interests on the PPSR is relevant at the following intervals:

1. For sellers, when preparing to sell the business; and
2. For buyers, when conducting due diligence.

This article explores the impacts of PPSR registrations when buying and selling a business and how these challenges can be avoided.

What is the PPSR?

The PPSR is national register that records security interests held over personal property. These interests can relate to stock, plant and equipment, vehicles, intellectual property and goodwill.

If a security interest is registered on the PPSR, another party has a legal right, claim or interest in the assets. Such rights typically belong to lenders or suppliers and take priority over other parties, including the buyer, if it is not discharged on or before settlement.

Why the PPSR Matters When Buying a Business

When conducting due diligence on a business, it is essential that a buyer conduct a PPSR search. PPSR searches cost a nominal fee of $2.00 per search and will reveal whether any of the business’ assets are subject to a registered security interest.

If a security interest exists over any of the assets being sold with the business, the release of that security interest should be a condition of settlement. If this security interest is not discharged before the purchase is complete, the secured party (i.e. the party who registered the interest) may still have a legal right over the asset. For the new owner of the business this can result in financial loss, disruption to operations or the need to incur legal fees.

As a buyer, you should ensure that your purchase of a business is not finalised and the assets are not transferred into your name until the relevant security interests have been discharged and removed from the PPSR. You should also obtain evidence to demonstrate this.

Why the PPSR Matters When Selling a Business

As the seller of a business, it is important that you are aware of any security interests registered over your business and its assets. Failure to discharge and resolve security interests can delay or compromise the sale, as settlement will not typically proceed until the interests are properly discharged and released.

Prior to listing the business for sale, a seller should:

1. Review all current PPSR registrations against the business and its assets; and
2. Liaise with the relevant secured parties to determine what is required to release the security interests.

Depending on the nature of the security interests and the requirements to discharge, a seller may wish to discharge them prior to listing the business for sale, particularly if the registrations are old or inaccurate. If this is not an option or if the seller wants to ensure that there is a buyer secured before they discharge any interests, the seller should do the following once contracts are exchanged:

1. Liaise with the relevant secured parties to arrange for the release of the security interests and complete all necessary steps to facilitate this; and
2. Provide written confirmation or evidence to the buyer that all PPSR interests have been discharged prior to settlement.

Conclusion

Checking the PPSR is a simple but often overlooked step that can prevent significant complications during the sale or purchase of a business. By taking the time to identify and address any registered security interests early, both parties can protect their interests and ensure the transaction proceeds smoothly.

Whether you’re selling or buying a business, our Business Sale Lawyers and Business Purchase Lawyers make the process easy, from contracts to settlement.

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