The Personal Properties Securities Act 2009 (Cwlth) came into effect on 30 January 2012.
The PPSA governs the registration of security interests in personal property (not land) and has changed the manner in which a supplier is able to assert a claim to assets it has sold, leased or lent to a third party.
In this regard, security interests in property, such as stock sold on credit terms under a traditional Retention of Title clause (ROT), or under bailment, now need to be registered on the Personal Properties Securities Register (PPSR), which is administered by the Insolvency and Trustee Service Australia (ITSA).
The failure of a supplier to register a security interest in their stock or other assets supplied under reservation of title arrangements, can lead to such assets being lost in the event of the appointment of an Administrator or Liquidator to the customer entity.
In order to have a valid registered security interest under the PPSA, such as a ROT claim, suppliers need to comply with the following registration timetables:
- Where inventory is supplied, the interest MUST be registered prior to the supply of goods
- Where non-inventory items are supplied, the interest MUST be registered no later than 15 days after control is given to the customer.
Failure to attend to the above may affect the priority claim of the supplier.
The transitional provisions under the PPSA are designed to facilitate a seamless changeover of laws. It gives suppliers automatic protection for 24 months from 30 January 2012 for supplies made prior to this date. It does this by:
- Deeming those interests to have been ‘attached’ and ‘perfected’ immediately prior to 30 January 2012; and
- Preserving the ‘perfection’ for 24 months.
Since the commencement of the PPSA, there have been three cases in Australia, dealing with the registration and enforcement of security interests in insolvency appointments. Two of these cases – WOW Sight and Sound and Super Butcher – both concluded that Personal Money Security Interests not registered on the PPS Register resulted in in a loss of priority for suppliers, who became unsecured creditors, despite the ROT clauses in their terms and conditions.
Below is a summary of the Super Butcher case:
- Super Butcher was a large independent meat retailer, which was placed into voluntary administration in April 2012, owing $8 million to creditors, including $600,000 to one pork supplier and more than $1 million to AusWide Wholesalers. Both companies failed to register security interests against Super Butcher.Despite the goods being supplied under ROT provisions, the failure to register their security interest on the PPS Register resulted in a loss of their priority to the goods to other unsecured creditors.
- The first case to be heard in the Courts in Australia was in relation to the $500 million collapse of Hastie Group Limited, which was placed into voluntary administration on 28 May 2012. At the time of the collapse, it held substantial plant and equipment and there were 995 PPS registrations against Hastie. However, most of the plant and equipment thought to be owned by third parties remained unclaimed (approx. 77%) despite the administrators writing to registered secured parties to ascertain their respective interests. The administrators successfully obtained Orders from the Court to sell the plant and equipment and disburse the proceeds despite the registered security interests. This case highlights the importance of responding to administrators/liquidator’s requests to determine the ownership of personal property, otherwise risk losing a priority position regardless of the registered security interest. It is important to review existing commercial documents.
Businesses need to be proactive in ensuring they have appropriate systems in place with regards to:
- The documents that need to be completed to establish the right to a security interest
- Registration processes that should be followed to ensure that security interests are registered on the PPSR in a timely manner
- Monitoring their stock and asset movements
- Their debt collection and account management processes
- Ensuring that their contact details on the PPSR are correct and that responses are provided to Administrators/Liquidators when required.
The lack of appropriate systems and controls in place to deal with the PPSR can have serious consequences for a business.
Talk to your Chartered Accountant if you have any concerns.