The Personal Properties Securities Act 2009 (Cwlth) came into effect on 30 January, 2012.
The PPSA deals with the registration of security interests in personal property, other than land, and has changed the way a supplier can lay claim to assets it has sold, leased or lent to a third party.
Security interests in property, such as stock sold on credit terms under the Retention of Title clause (ROT), or under bailment, now need to be registered on the Personal Properties Securities Register. The PPSR is administered by the Insolvency and Trustee Service Australia (ITSA).
If a supplier fails to register a security interest in their stock or other assets supplied under reservation of title arrangements, their assets can be lost if an Administrator or Liquidator is appointed to the customer entity.
Suppliers need to comply with the following registration timetables in order to have a valid registered security interest under the PPSA, such as a ROT claim:
- Interests MUST be registered prior to the supply of goods, where inventory is supplied.
- The interest MUST be registered within 15 days of control being given to the customer, where non-inventory items are supplied.
Failure to meet the above may affect the priority claim of the supplier.
These transitional provisions under the PPSA are designed to seamlessly change the laws. They also give suppliers automatic protection for two years from 30 January, 2012 for supplies made prior to this date. This is done by:
- Deeming those interests were made before 30 January, 2012; and
- Preserving the ‘perfection’ for 24 months.
There have been three cases in Australia dealing with the registration and enforcement of security interests in insolvency appointments since the start of the PPSA. Two of these cases, which include WOW Sight and Sound, and Super Butcher, concluded that Personal Money Security Interests were not registered on the PPS Register, which resulted in a loss of priority for suppliers. They then became unsecured creditors, despite the ROT clauses in their terms and conditions.
Here is a summary of the Super Butcher case:
Super Butcher, which was a large independent meat retailer that owed $8 million to creditors, was placed into voluntary administration in April 2012. This included $600,000 to a pork supplier and more than $1 million to AusWide Wholesalers. Both of these companies had not registered security interests against Super Butcher.
Even though the goods were supplied under ROT provisions, because they hadn’t registered their security interest on the PPS Register, they lost their priority to the goods to other unsecured creditors.
The $500 million collapse of Hastie Group Limited was the first case to be heard in the courts in Australia. The company was placed into voluntary administration on May 28, 2012 and at the time of the collapse, the company held substantial plant and equipment.
There were 995 PPS registrations against the company, but about 77% of the plant and equipment thought to be owned by third parties remained unclaimed. This is despite the administrators contacting registered secured parties to record their interests.
Orders were then obtained from the court to sell the plant and equipment and share the proceeds, irrelevant of registered security interests.
This shows how important it is to respond to the requests of an administrator or liquidator when they are trying to determine the ownership of personal property. If you don’t respond you may risk losing a priority position, regardless of registered security interests.
Businesses need to be make sure they have the documents they need to get a security interest and ensure that all processes they follow are registered on the PPSR as soon as possible.
Businesses also need to monitor their stock and asset movements and ensure they have efficient debt collection and asset movement monitoring procedures.
If a business does not deal with the PPSR appropriately, it can come with serious consequences.