The Personal Property Securities Act 2009 (Cth) (PPSA) is legislation that is widely used by large businesses to protect/hold their interest in goods until payment is received. It is, however, underutilised by SMEs, writes Angus Sedgwick.
When the PPSA was introduced, one of the significant changes for business was that a retention of title (ROT) clause in a contract no longer provided any security to the supplier of the goods, unless the security interest created by the ROT clause was registered on the Personal Property Securities Register (PPSR).
The PPSR is an online portal where a party that has a security interest over another party can lodge a security registration. It came into operation on 30 January 2012, replacing the ASIC companies register for the registration of all security interests, other than property.
Traditionally, a ROT clause gave the supplier the right to the goods supplied, even though they had parted with possession of the goods. This meant that if the supplier was not paid for the goods, they had the right to repossess the goods because the title remained with the supplier until they were paid. This is no longer the case.
Under the PPSA, if suppliers wish to maintain and exercise their retention of title rights, they must register their interest in the goods supplied on the PPSR. Importantly, goods must not be supplied until after the registration of the supplier’s security interest on the PPSR.
In practice, if a supplier fails to register its security interest in the supplied goods and the customer becomes insolvent, then the goods will become the property of the insolvent customer or, more accurately, the liquidator. This allows the liquidator to seize and sell the goods supplied as if they were the property of the customer.
Conversely, if the supplier’s security interest is correctly registered, they become a secured creditor and the liquidator has no right to the goods, so they cannot seize and sell them.
The ordinary PPSA priority operates as a ‘first in, first ranking’ rule. For added protection, businesses can register a Purchase Money Security Interest (PMSI).
Under a PMSI, a business becomes a secured creditor over an asset with a specified serial number and the purchase price of the goods is secured. The PMSI has priority over any other general security, even if the PMSI registration occurs after the registration of a general security interest.
Regardless of the option chosen, it is crucial that a security interest is ‘perfected’ by utilising the PPSR to give businesses priority interests.
The benefit of this was clearly demonstrated to a client of The Invoice Market recently. They had supplied a quantity of aluminium to one of their customers (or debtors), who subsequently entered insolvency. Payment for the aluminium had not been received. When the liquidator was appointed, they took control of the business and only after confirming this client’s interest in the aluminium was valid through its PPSR registration, were the goods returned.
The following points are a helpful guide when completing a registration of a security interest created by a ROT clause in a contract:
1. Registration of the goods through the online portal at www.ppsr.gov.au must occur prior to their supply.
2. The goods (the collateral) must be accurately described.
3. If serial-numbered goods, the serial number must be accurately stated (even one incorrect digit results in an ineffective registration).
4. The PMSI box must be ticked.
5. The grantor (the customer) must be accurately described.
5a. If a company, then the correct company name and ACN must be provided along with the current registered address.
5b. If an individual, the full name, address and date of birth must be provided.
Angus Sedgwick is the CEO and managing director of The Invoice Market. He has more than 25 years' experience in the insurance, financial advice and funds management industries in Australia and South Africa.