Using the PPSA to Protect your Business
Many businesses believe the PPSA to be an onerous obligation, only relevant if you hire out equipment, completely missing the very significant benefits the PPSA provides for any business selling goods on credit.
One of its principal goals is to help protect you from the insolvency of your customers.
It doesn’t matter what you sell, the PPSA is here to help you. A simple rule of thumb – if you have retention of title (ROT) in your terms of trade you should be complying with the PPSA. If you don’t, you should now reconsider your position.
Historically, ROT clauses produced limited benefits; the PPSA now provides strong legislative backing for your ROT.
As long as you have an adequate ROT clause – Property and title in the goods supplied by us to you will not pass to you until such time as all monies due and owing by you to us are paid in full (example only).
And you comply with the PPSA – simple, usually one, $6.00 registration to protect the next 7 years of trade with your customer.
You’ll get the following benefits on the insolvency of your customer:
- You are a Secured creditor with the highest and best claim against the unpaid goods you’ve delivered (higher priority than anyone, including the Banks);
- You are a Secured creditor with the highest and best claim over any proceeds from your customer’s dealing with your goods; and,
- You have a very strong defence to a claim you’ve received a preferential payment from your customer.
Let’s see how this works in a real-life example (names have been changed).
Qld Steel supplied steel to WA Fabrications and when WA Fab collapsed in 2014, Qld Steel was owed $400k. Qld steel had paid the (then) $8.00 registration fee and had registered its interest in the steel it supplied WA Fab.
Was it a worthwhile investment? Absolutely. Qld Steel now has the highest priority claim over:
- The $36k of stock Qld Steel delivered in the 48 hours prior to WA Fab’s collapse;
- The value of Qld Steel’s steel in WA Fab’s work in progress; and,
- The value of any debtors recovered by the liquidator in respect of WA Fab’s previous sale of Qld Steel’s steel.
And in addition to these substantial benefits, Qld Steel has a strong defence to the possible preference payment claims from the liquidator (worth almost $200k).
Qld Steel’s position was ultimately settled after negotiation with the liquidator. And keep in mind, the liquidator had to resolve Qld Steel’s claims because it is now a secured creditor with the highest priority claims over its stock and the proceeds from its stock.
This was a fantastic outcome for Qld Steel. Had they not complied with the PPSA they would have been treated as an unsecured creditor facing a substantial preference claim.
If you’re not complying with the PPSA now is the time to reconsider.
Please keep in mind this is not legal advice. You should obtain appropriate advice before acting.
If you have any queries about PPSA, please contact your Ledge Finance Executive or contact us here and we will be happy to assist.