Retention of Title & the PPSA
The Personal Property Securities Act 2009 (Cth) (PPSA) commenced on 30 January 2012 and in doing so, provided a national statutory framework for the process of taking security over personal property.
Amongst other things, the PPSA has changed the way we think about retention of title (ROT) arrangements (i.e. where a supplier intends to retain title to goods until the customer pays for them).
Before the PPSA came into effect, a supplier with an effective ROT clause had a simple remedy when the customer became insolvent. It was generally only necessary for the supplier to prove continued ownership of the goods, upon which the supplier could retake possession of those goods out of the insolvency.
This is no longer the case under the PPSA. The PPSA now disregards a supplier’s title to the goods and instead treats the supplier’s interest in the goods as a “security interest” which must be registered on the Personal Property Securities Register (PPSR). If a supplier fails to register their security interest on the PPSR then that security interest will vest in the customer upon an insolvency event. In other words, the goods will become available to the customer's creditors as a whole (including the supplier, but only as an unsecured creditor).
In light of the above the PPSA has become a key issue for many businesses who supply goods to their customers on an ROT basis. Below are some practical tips for navigating ROT issues under the PPSA:
- Review your terms and conditions – As a supplier, you should review your terms and conditions with customers to ensure that they are signed by the customer, that they adequately describe the goods and that they address the PPSA and your right to register a security interest on the PPSR.
- Obtain full contact details for customers – Make sure your customers provide complete details (i.e. full name, ACN, ABN and contact details) to ensure that you can properly register the security interest against the customer on the PPSR.
- Check if the customer is acting as trustee of a trust – Make sure you clarify whether the customer (regardless of whether they are a person or company) is acting individually or acting in their capacity as trustee of a trust. This will determine whether the security interest needs to be registered against the ABN of the trust, the ACN of the company or the individual person in order to be valid.
- Register your security interest in time – The timeframes for registration differ depending on the type of the security interest. Some security interests (such as “purchase money security interests” which arise under ROT clauses) may need to be registered before the goods are actually supplied to the customer in order for the registration to be valid.
- Pay attention to detail when registering on the PPSR – It is critical that PPSR registrations accurately describe the parties, the collateral (i.e. the goods) and the type of security interest in order for the registration to be valid.
- Create internal policies and procedures for searching and registering on the PPSR – It is important for suppliers to be vigilant in relation to the PPSA. By putting certain policies and procedures in place this will help to ensure that security interests are properly created, protected and registered.
Clelands Lawyers can assist you with your PPSA requirements, contact Patrick Connelly
17 March 2017