The Personal Property Securities Act (PPS Act) gives priority to those who assist in the acquisition or production of crops and livestock. Common situations where the PPS Act can help your business include where you sell livestock or equipment on terms, supply feed or fertiliser, provide agistment or other services, or sell grain to resellers or under consignment agreements. The PPS Act can be used whenever a person wishes to obtain a right in assets to secure payment of a debt or other obligations.
The PPS Act generally operates on the basis that a person in possession of property (other than land), even if they do not own it, has the legal right to sell or mortgage it, subject to properly documented and registered interests on the PPS register. Some examples of how the PPS Act operates are:
- Example 1: John sells cattle to Mike from time to time, but always on the condition that Mike does not own the cattle until he has paid John in full. A single suitable document and PPS registration by John can cover all of the sales made to Mike, giving John first rights over the cattle for the debt owed to John, even if Mike becomes bankrupt.
- Example 2: John and Mary are directors of a family company, which is the trustee of a family trust. The trust conducts a grain growing enterprise but is a little low on cashflow. Mary's parents lend some money to the trust to grow and harvest this and future years' crops, but want to make sure they have first rights over any crops and proceeds from the sale of the crops. By suitable documents and registration under the PPS Act, Mary's parents can rank ahead of all other creditors and get paid first.
- Example 3: John agists cattle on Mike's property from time to time. Mike wants to make sure that if John does not pay the agistment fees, Mike can sell the cattle (whether or not they are owned by John) to recover the debt without having to go through a prolonged court process. Mike can do this by using the PPS Act, helping him to be paid ahead of John's other creditors.
- Example 4: John's son Paul borrows John's equipment to do some work on Paul's property. Paul does work on John's farm from time to time in return for being able to use the equipment. The equipment is normally stored on Paul's property for lengthy periods, but John has not registered on the PPS register to make sure he has the right to get his equipment back. Paul gives a mortgage over all of his farm to his bank (as is often the case), which the bank registers on the PPS register. The bank now has first rights over the equipment, despite Paul not owning the equipment, as no PPS documents and registration had been created by John.
Farmers and graziers should consider undertaking a "PPS Act audit" to understand, verify and protect their rights over assets. This does not need to be a burdensome process, as many transactions between the same parties (for example, related entities or regular customers) can be covered by the one agreement and a single registration (registrations cost as little as $6). We can undertake this audit for you, provide you with more detailed information on how you can make the PPS Act work for your business and create the suitable agreements and registrations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.