Business Advisory

PPSA review to be wide ranging

B2B Editor 29 May 2014

PPSA review to be wide ranging

Previously in this magazine I alerted readers to the potential and actual pitfalls of the Personal Property Securities Act 2009 (“PPSA”). Since its implementation, on 30 January 2012, the PPSA has changed the business landscape in Australia and with it, the rights and obligations of claimants to goods being dealt with in insolvency matters.

In April of this year, the Attorney General, Senator George Brandis QC, commissioned a review in to the operation of the PPSA and its registry element, the Personal Property Securities Register. That review will be wide ranging and is seeking submissions from small business and the general community on 13 key areas of the operation of the landmark law.

The timing of the review is relevant given that, since the PPSA came into effect, business uptake at the small and micro level has been slow. More than two years on from implementation, many business operators are unaware of the law’s existence, let alone its operation.

Some recent examples of situations where suppliers of goods have fallen foul of the PPSA and lost their goods in a winding up include:

* A finance company suppling goods under a commercial hire purchase arrangement to an intermediary who then on-lent to a company. The company became insolvent and the absence of a perfected security interest between the company and the intermediary led to the finance company being unable to recover its goods;

* A supplier of goods under a loan agreement (a bailment for value), lost the goods to a liquidator in circumstances where a registration on the PPSA was made, but made after the date of winding up;

* An inventory supplier to a company lost the ability to reclaim stock under a retention of title claim as no written supply agreement was in place and, despite the PPSR registration being made within time, there was no written terms underpinning the registration.

Critically, grantors (businesses) and secured parties (suppliers, lenders, lessors etc) must understand that an unregistered or unperfected security interest vests in the grantor entity upon insolvency. A liquidator or bankruptcy trustee may be free to sell assets that might previously have reverted to a supplier or lessor on insolvency under retention of title or lease contract terms.

Businesses, especially suppliers and lessors who are still yet to take action to protect their goods, should seek prompt advice from their trusted business advisor.

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