Employers should be aware that authorising employees to enter into terms of trade that contain retention of title or credit terms, or that relate to a lease or consignment of personal property (Supply Contracts), will entitle the supplier of those goods to register a Personal Property Securities Act 2009 (Cth) (PPSA) security interest over the employer company.
How is that possible?
The PPSA is one of the most significant reforms to Australian commercial law in decades. It applies to commercial transactions involving virtually all types of property (except land). As a result, it has a significant impact on numerous commercial relationships, documents and transactions, including employment contracts.
The issue arises in the employment context, because the PPSA extends the concept of a "security interest" to include (amongst other things):
- Retention of title arrangements (for example, equipment supplied on trade account terms);
- Equipment leases; and
- Bailment or consignment arrangements.
Key employees may be given authority to enter into Supply Contracts as part of their role. However, employers and employees should be aware that entering into Supply Contracts will, when signed by the employee, entitle the supplier to register a security interest over the employer company on the Personal Property Securities Register (PPSR).
How does the PPSA impact me?
Employers should be aware that allowing employees to enter into Supply Contracts may have the following unintended consequences:
- a breach of the employer's banking covenants that prohibit the employer from encumbering the employer's assets without the bank's consent; and
- a large number of security interests being registered over the employer company on the PPSR that may impact on the employer's ability to obtain funding/credit or enter into other Supply Contracts.
What should you do?
Although an employer cannot prevent a supplier from registering a security interest on the PPSR, there are a number of steps an employer can take to mitigate the risks identified above:
- educate employees of the risks associated with signing Supply Contracts;
- implement an internal policy requiring that Supply Contracts be signed only by authorised senior personnel; and
- undertake an annual review of the PPSR security interests registered over the employer to ensure all of those interests are current and identify expired interests that should be removed from the PPSR.
How we can help
DibbsBarker can assist in drafting and implementing internal PPSA policies, undertaking annual PPSR reviews and conducting seminars about the PPSA regime.
We also offer general PPSA advice and advice on specific issues of concern.
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.
