The commencement of the Personal Property Security Act 2009
(PPSA) on 30 January 2012 has significant
implications on the business undertakings of many Australian
industries, especially those who regularly supply goods on
retention of title (ROT) terms.
An ROT clause, also referred to as a 'Romalpa' clause,
is often used by suppliers to hold ownership of, or title to, goods
until the buyer has paid for the goods in full.
Previously, ROT clauses were recognised at law and did not
require registration – indeed registration was not
possible. Suppliers of goods supplied under an effective ROT clause
were able to recover goods not yet paid for upon the insolvency of
the party in possession of the ROT goods.
However, under new PPSA laws things are different. Suppliers and
other beneficiaries of ROT clauses will need to register their
interest, known as their security interest, in goods supplied to
ensure that their ROT clause remains enforceable against, and
continues to have priority over, other interests as intended.
The security interest arising from an ROT arrangement is
referred to, in PPSA terminology, as a 'purchase money security
interest' (PMSI). The importance of this type
of security interest is that if duly registered within the
legislated timeframes, it generally has a 'super priority'
against other interests in a variety of circumstances. For
instance, a supplier who has a duly registered PMSI can potentially
have priority over even previously registered security
A failure to register an ROT arrangement as a PMSI does not
render it ineffective, but it means it will not enjoy super
priority against other interests.
That is not to say that all ROT suppliers should necessarily try
to register all of their ROT arrangements as PMSIs. Instead, ROT
suppliers will need to consider carefully the benefits of
registration against the nature and magnitude of the risk that the
ROT arrangement is intended to address and their relationship with
their customers, as well as the burden, and cost of registration.
In the meantime, ROT arrangements that were on foot as at 30
January 2012 enjoy limited transitional protection while suppliers
work out their registration approach.
On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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