Personal property securities act: the honeymoon is over

By Andrew Goode

In February 2012 I wrote about the new Commonwealth Act called the Personal Property Securities Act (“PPSA”).

The PPSA established a national register (known as the “PPS Register”).  In part, it gives a person who supplied, or leased out goods a potential priority over competing unregistered interests where another person who had possession of their goods becomes insolvent.  It is necessary however to register your interest (called a “Security interest”) on the national Register to achieve that priority.

Until 2012 the usual way that a seller of goods protected their interest when selling goods on deferred payment terms was to incorporate a clause in their sales contracts called a Romalpa clause (named after an English case), which was essentially a “retention of title” clause which said legal title over goods remained with the supplier until the buyer paid the purchase price.

Following the introduction of the PPSA, suppliers of goods are now not only required to incorporate a Romalpa clause into their sales contracts, but are also required to register their interest in the relevant goods on the PPS Register.

There was a 24 month window to allow suppliers to continue to rely on romalpa clauses without registering on the PPS Register, but that window shuts on 30 January 2014.  If registrations are not undertaken before that date, suppliers who have not registered on the PPS Register are at risk of losing title to goods which have been delivered to buyers but not yet paid for.  

If you have supplied, or stored or leased out goods to another party but want to retain the title until you are paid, then in some circumstances (note “some”) unless the goods are protected by some other legislation, you may need to take action to protect your property interest by registering it on the PPS Register.  Clear as mud?

There are a number of scenarios for grain growers, where they need to consider registering a security.

If you are storing grain which is mixed with the grain of other parties for an indefinite period (no fixed term) or for more than one year, you may arguably not be fully protected by the Warehouse Liens and Storage Act (SA) which attempts to ensure that commingled grain remains the property of the grower while it remains unpaid.  You would be wise to consider registering a security interest on the PPS Register in those circumstances to bolster your position provided the storage contract allows it.

Where you sell grain to a buyer on deferred payment terms or you supply unpaid grain to a marketer who holds it in a pool, then provided that your supply contract contains a Romalpa clause, you should register your grain as a security interest, to reduce the risk that you will lose the right to recover the grain if the other party becomes insolvent. 

Even if you register on the PPS Register however, there is no absolute guarantee in the event of an insolvency, that you will recover all the grain or be paid in full as there may be conflicting claims by banks, other registered proprietors etc in relation to the pooled grain, but at least you have some claim.

We would recommend grain growers review their existing arrangements.  You might be wise (even if registered) to also spread your risks so that if you do sell on deferred terms or supply to a grain pool and the buyer or marketer subsequently goes belly up you haven’t “bet the farm”.  

It’s not just grain growers, however, that need to be aware of these risks.

As I highlighted in my previous article, there are risks for livestock producers too.

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Details: Andrew Goode  e: agoode@mellorolsson.com.au or Ph: 8414 3400

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