Buying Machinery and Equipment – How To Best Protect Your Investment

One constant in business - is having to spend money. Business owners regularly make big purchases for new or second-hand plant and equipment or vehicles for their operations.

Whether you do this as part of a new business purchase, or you are buying machinery for your existing business, there are a few essential searches you should do before handing over your hard-earned cash to the seller and driving off into the sunset.

Did you know that even if you buy machinery or equipment from someone, they may not have the right to sell it?  

Just like a bank takes a mortgage over land and has the right to sell it at any time if there is a default; banks and other parties, such as equipment financiers or suppliers, can take a Registered Security Interest over personal property, and can repossess or sell it too.

These Registered Security Interests can be discovered on the Australian “PPSR” – which stands for the Personal Properties Securities Register.

 What is the Personal Properties Security Register?

The PPSR is a National online register where all parties, including financiers, suppliers and sometimes even owners, need to register their interests in personal property, to secure their interest in it.

Personal Property which businesses often deal with include things like:

-       Machinery – cranes, tractors, bobcats, forklifts, backhoes, excavators, etc

-       Motor vehicles – trucks, busses, cars

-       Stock in trade/inventory

-       Compressors

-       Trailers

-       Boats

-       Aircraft

-       Crops, and

-       Livestock

 How Do You Check The PPSR?

The PPSR is online (www.ppsr.gov.au) and searches can be done directly on the website for as little as $2.

Otherwise, your local lawyer can assist you with conducting the correct PPSR searches to ensure that you are buying the equipment free from all encumbrances for a small fee.

What To Search Over?

If you are buying machinery with a VIN, then the first PPSR search you should conduct should be over the VIN. Most vehicles built after 1989 will have a VIN which is 17 characters long. If the vehicle was built before 1989 it should have a chassis number. VINs and chassis numbers are a mix of numbers and letters.

If there is no VIN or chassis number, there may be a manufacturer’s number that you can search over. However, manufacturer’s numbers are often not unique and therefore searching them can bring up multiple results over other unrelated vehicles.  

The good news is there are certain protections for buyers of serial numbered property if they conduct a search on the PPSR over the equipment’s VIN, chassis number or manufacturers number and it returns no results. If the search is done correctly, and no registered security interest is shown, then the buyer will, in most cases, take the property free of any security interest.

Even when you conduct a search over the piece of equipment (using its VIN, Chassis or Manufacturer’s number), we also recommend you conduct a PPSR search over the Seller too. Often a bank or other equipment financier, hirer or supplier will register a ‘blanket’ security interest over the Seller to ensure that they hold an interest over all of the Seller’s current and future assets. This ‘blanket security’ is called an “AllPAAP” – which stands for “All Present and After Acquired Property”. 

To do a search over the Seller, you need their ABN and/or A.C.N (if the Seller is a company).

If you are buying the machinery from an individual, or there are a number of individuals that own it together, you should be conducting your PPSR searches over each of them individually also. To do this, you’ll need their full names (as verified on their government issued ID) and their date of birth.

What If There is a Secured Interest Held on the PPSR?

Once you conduct the correct searches on the PPSR, and there are registered security interests shown, it may mean that Secured Party has a right to repossess that property at any time, even after you’ve paid for it and taken delivery of it!

This means that if any secured interests show up in your searches over the equipment or the Seller, you need to have the seller arrange to get these interests fully released from the PPSR (and receive proof of the ‘Discharging Statement’) or receive a letter of undertaking from the Secured Party to confirm that they do not hold any interests over the particular piece of equipment you are buying.

This is the only way you can ensure that the seller is selling you something that no other party holds an interest in.

What if You Don’t Check the PPSR?

As the PPSR is a National Register and you can discover any Registered Interests over personal property being purchased quickly and cheaply, you are deemed to have been put on notice that the equipment you are buying has a registered interest over it. This means that if you proceed with the purchase and don’t get the necessary releases or letters of undertaking, you could be buying the equipment subject to that Secured Party having a right to it in priority to you.

It is therefore essential that you conduct the correct PPSR searches over the equipment and the seller, and receive proof that any registered interests have been released before you buy.

If you require assistance with checking the PPSR and/or obtaining the necessary releases from a Secured Party, please contact our commercial law team.

The content of this article is intended to provide a general guide to the subject matter. Specific advice should be sought about your particular circumstances.