Start-up businesses have been warned to be aware of complex new personal property securities rules that will come into force next year.
From May 1, companies will be obliged to submit a list of their securities via an online national register. The requirement brings together dozens of state laws on the issue.
Firms will have to list tangible assets, such as cars, boats and machinery, as well as intangible assets such as shares, intellectual property and licences.
The regulations aim to help businesses protect their assets, but John Vouris, partner, business recovery and insolvency at Lawler partners warns that compliance could be costly to small firms.
“Clearly, businesses will need to dramatically change the way they’re managing their assets to comply with the new legislation, and factor in much higher compliance costs,” he says.
“Registration of security interests will cost businesses anywhere between $1 and $3, and if you have thousands of interests to register, the amount adds up substantially.”
“Manufacturers and suppliers of goods in particular will need to register security interests over all goods that are supplied to retailers, for example, to minimise the risk of title over products being defeated if that business fails.”
Vouris says that small businesses must be aware of what constitutes an ‘interest’, warning that firms could lose an asset if they fail to register it within a specified period.
Sue Prestney, principal at MGI Melbourne, adds: “When you are a start-up, you don’t have a lot of resource and you often don’t get good advice. You need to concentrate on your asset protection.”
“Get the right systems in place from the start. A lot of start-ups’ internal structures are sloppy, but you can do something about it. One person often has too much control over stock and we do see people defaulting over this.”
“But you shouldn’t think of it as a bad person putting your assets at risk, more that your systems aren’t good enough. If you sit down with an accountant you can work out how to protect your assets.”
Vouris’ checklist for businesses is:
- First, review all assets the company owns, and determine what needs to be registered.
- Review all your loans, and assess what collateral has supported those loans?
- If you sell goods, you should review your standard contract and terms.
- If you lease goods then compile an inventory of lessees, and be ready to register your security interests on day one.
- What intellectual property licenses, investment instruments or shares does the company hold?
- If you are involved in a joint venture then review the interests of the joint venture.
- What training does the company have to undertake for staff?
- What IT processes and protocols does the company have to create to ensure a streamlined, up-to-date database of all the company’s security interests?
- And finally, ensure your inventory of registered security interests is kept up-to-date.
A full version of the Personal Property Securities Guide 2009 can be found here.