Australia: PPSA and Retention of Title Arrangements: Questions and Answers

register a company,how to register a company,land title
Last Updated: 25 January 2012
Article by Anthony McFarlane
  1. The PPSA - The Personal Property Securities Act 2009 (Cth) ("PPSA") will commence on 30 January 2012 ("Commencement Date"). The PPSA will have a significant impact on the taking, registration and enforcement of security over almost all kinds of property (except land and statutory licenses). For more information see Brief Guide to PPSA Readiness.
  2. What is changing? - the PPSA captures new transactions that did not previously require registration pre-PPSA to provide protection in an insolvency situation.
  3. Are "Romalpa" or Retention of Title (RoT) clauses caught?- Yes. RoT clauses, typical in supply agreements, lease and conditional sale arrangements, are deemed to be a "security interest" under the PPSA and must now be registered under the PPSA to ensure maximum protection to a seller of goods on RoT terms.

    A seller of goods under an RoT clause will remain the owner of the goods. For the purposes of the PPSA, however, ownership of the goods is largely irrelevant. The PPSA will treat the arrangement as if it were akin to a secured loan, and will apply as if the purchaser had become the owner of the goods and had granted security over the goods back to the seller.

  4. Implications - This has some key implications for suppliers that rely on RoT clauses:
  1. a seller's sale documents and procedures must comply with the PPSA to create and register a security interest otherwise the RoT clause may not work as intended;
  2. a seller can no longer "enforce" its RoT clause by simply taking goods back (there are enforcement procedures under the PPSA); and
  3. the purchaser will now be able to grant security over the goods to third parties.
  1. Will sellers need to amend documents?- Yes. Sellers will need to amend their trading terms that contain RoT arrangements for:
  1. new relationships established after the commencement of the PPS regime (the registration commencement date); and
  2. existing RoT arrangements where a seller will continue to supply goods under those arrangements after the registration commencement time (note: the counterparty to this arrangement will need to accept the amendments, as the amendments will vary an existing contractual relationship.)
  1. Registration - A seller on RoT terms must also "perfect" their security interest by registration on the PPS register through what is called a "financing statement". A single financing statement can be registered at the outset of the trading relationship to cover all supplies made (so long as the description of the collateral in the financing statement is broad enough to cover all types of property to be supplied.)
  2. PMSI - The RoT security interest, to the extent it secures the purchase price of the relevant goods, can and should be registered as a Purchase Money Security Interest ("PMSI"). PMSI's have priority over non-PMSI security interests. A PMSI must be registered with a specified timeframe (for inventory, the PMSI must be registered before the purchase takes possession of the goods).
  3. Do I need to register pre-commencement RoT arrangements? Not if the seller will not supply goods after the commencement date (currently 30 January), except for arrangements where monies are likely to remain outstanding beyond the two year transitional period.
  4. An example from New Zealand - The case of Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528 was the first New Zealand case and a good example of why you should register a security interest. The case reports show that Portacom was a company that had leased portable toilets to NDG Pine. Separately, NDG Pine took a loan from HSBC secured by a fixed and floating charge over all of its property. Unlike Portacom, HSBC registered its security interest on the PPS register. NDG Pine defaulted on its loan and HSBC appointed receivers to NDG Pine. Under the pre-PPS law, Portacom would have been able to take possession of the toilets because it owned them. The Court held that HSBC's registered security interest had priority over Portacom's unregistered interest as the owner and lessor. Portacom's failure to register its lease meant the receivers could sell the toilets and pay the proceeds to HSBC, even though Portacom was the lawful owner and had only leased them to NDG.

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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.

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