What lessons can be learnt from the first year of operation of
the Personal Property Securities Act 2009 (Cth)
("PPSA"), and how can businesses protect
their assets in the future?
Previously suppliers could rely on retention of title provision
in supply contracts to reclaim unpaid stock if a purchaser became
insolvent. As we know the PPSA changed that position.
Under the PPSA, retention of title clauses are no longer
sufficient to retain title in supplied goods. The owner of the
goods must register its Security Interest on the Personal Property
Security Register ("PPSR").
If the Grantor (holder of the goods) becomes insolvent then
pursuant to Section 267 of the PPSA, a new Security Interest in
favour of the Grantor is created by default over any assets not
subject to a prior Security Interest registered on the PPSR.
The practical effect of Section 267 is that a supplier who does
not register a Security Interest on the PPSR will, in the event of
the Grantor's insolvency, become merely an unsecured creditor
for the value of the assets and will rank behind secured creditors
for the purpose of any distribution.
HOW HAS THE PPSA WORKED - ONE YEAR ON?
Wow Audio Visual Superstores Pty Ltd trading as Wow
Sight and Sound
In March 2012, the receivers of Wow Sight and Sound declared
they would only recognise retention of title interests over unpaid
stock if registered on the PPSR.
Approximately $25 to $30 million worth of stock received but not
paid for was sold by the receivers at a discount. The proceeds of
sale were first used to pay the secured (and registered) bank loans
of Wow Sight and Sound.
The unpaid suppliers (who had not registered their Security
Interest) were entitled only to share in the remaining funds as
Super Butcher, a large independent meat retailer, was placed
into voluntary administration in April 2012. At the time Super
Butcher owed creditors $8 million.
Super Butcher owed $600,000 to one pork supplier and more than
$1 million to AusWide Wholesalers for unpaid stock. The goods were
supplied under retention of title terms, but neither the pork
supplier nor AusWide Wholesalers had registered a Security Interest
on the PPSR.
The failure to register the Security Interest resulted in a loss
of their priority, ranking them as unsecured creditors. The effect
on each of those businesses of failure to register their interest
on the PPSR was significant.
Carson, in the matter of Hastie Group Limited (No
3)  FCA 719
The Administrators of the Hastie Group found they had 3,684
items of unclaimed equipment incurring weekly storage costs of
$61,134.26, and 995 insufficiently detailed Security Interests
registered on the PPSR.
Attempts had been made to locate potential claimants, including
by email to all creditors with a PPSR interest recorded against the
Hastie Group. Only 20% of potential claimants responded, and many
responses were inadequate.
On 5 July 2012, Yates J gave directions that the Administrators
may sell equipment potentially owned by third parties and possibly
subject to PPSA registration, and to distribute the proceeds in the
ordinary course after three months.
This decision was based on the "genuine and substantial
difficulties" of identifying potential claimants for specific
items of equipment subject to a Security Interest brought about by
insufficient detail on the PPSR, and the lack of response when
creditors were contacted on the registered email addresses.
LESSONS FOR BUSINESS
When registering a Security Interest on the PPSR:
Ensure a sufficiently detailed description to clearly identify
Register an email address that will be monitored; and
Implement processes to bring any communications regarding the
asset to the attention of an officer able to quickly to
In circumstances where high stock turnover makes PPSR
registration impractical, suppliers must monitor the solvency of
debtors, and not allow an individual debtor to incur too much debt
or accumulate too much unpaid stock.
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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