It is staggering how many businesses do not understand the Personal Property Securities Act, better known as the PPSA, after it has been in place for nearly five years.
Here’s the thing – the PPSA is a game changer and businesses that continue to ignore it do so at their peril.
Any business that sells goods on consignment or on retention of title terms had some protections from changes arising from the PPSA while the ‘Transition Period’ was running. However, that period ended on 31 January 2014 and many businesses have continued to do nothing about the PPSA, leaving them exposed to the risk of losing their goods if their customer becomes insolvent.
The PPSA established a national register called the Personal Property Securities Register (or the ‘PPSR’) which lists security interests that are registered over personal property (excluding land) and created a priority system between different security interests over the same property based on who registered first (‘first in time, first in line’).
However, if you run a business that sells goods on consignment or on retention of title terms then the PPSA allows you to obtain a super priority in respect of those goods, ahead of prior registered security interests. The same super priority is available for goods that are leased out by a leasing business for longer than a year (called a ‘PPS Lease’). Security interests over such goods and PPS Leases need to be registered on the PPSR as purchase money security interests, or ‘PMSIs’, to gain the benefit of that super priority. If that security interest is not registered, your business risks losing those goods to a receiver, liquidator or administrator of your customer, even though ownership or legal title may not have passed to the customer.
Standard retention of title clauses in your credit application, consignment agreement, or plant and agreement leases, in respect of your goods is not enough to protect you. The bottom line is that if your customer or distributor enters into any form of insolvency administration and a liquidator, receiver or administrator seizes their assets, you risk losing your goods unless you have registered a PMSI. However, if you have registered a PMSI, you will be in a strong position to take back those goods.
Timing is critical, you need to register the PMSI before you deliver the goods to your customer or distributor if those goods will form part of inventory. You should also ensure that your terms and conditions include clauses that allow you to register a PMSI and that the goods are properly described.
In short, take the PPSA seriously and if you want to take advantage of the benefits of a right to a super priority, make sure you register a PMSI over the goods supplied by you so that you are not left as an unsecured creditor if your distributor or customer enters into any form of insolvency administration.
If you would like to know more about the PPSA and how it affects your business, please get in contact with our team.