Personal property law overhaul on its way

Businesses are being urged to prepare themselves for a significant overhaul to personal property laws, which will mean businesses supplying goods on credit must record their interest on a new national Personal Property Securities Register (PPSR).

If they do not do so, they risk losing their assets to competing creditors if their customers become insolvent, TurksLegal Commercial Law Partner Daniel Turk warns.

Due to commence on 31 October, the PPSR permits registration of security interests in all kinds of personal assets and will replace state and territory registers of encumbered vehicles, as well as various federal registers including the ASIC Register of Company Charges. Personal assets include items such as trading stock, furniture, jewellery, cars, business equipment, livestock and also contractual rights and intellectual property.

According to Turk, businesses supplying goods on credit terms subject to retention of title (ROT) clauses are particularly likely to be caught out by the new laws. ROT clauses are common contractual provisions that prevent ownership of goods from passing to purchasers until the supplier is paid in full.

“Prior to the new PPS legislation, ROT clauses alone were generally enough to protect a supplier’s ownership of unpaid goods.  If the customer went under, the liquidator, receiver or administrator was largely bound to pay out the supplier if the stock was sold on a winding up, receivership or administration.”

“From October, all that will change.  Business that do not to take additional steps to register their ROT interests on the PPSR could lose out to competing creditors with registered interests.  In most cases, this will be the customer’s bank which typically has a charge over all the customer’s stock and assets as security for its business loans.”

To protect their interests, suppliers should review their terms of trade without delay. For new customers, terms containing ROT clauses should be in writing, signed by the purchaser and registered on the PPSR before the goods are supplied. For existing customers, a two-year transition period applies to get interests registered, but Turk warns it won’t apply in all cases so businesses shouldn’t assume they are eligible.

“These new laws have substantial financial ramifications.  Australian businesses caught unawares stand to be hit hard,” Turk added.

Tips to protect the interests of goods suppliers:

  • Ensure terms of trade containing ROT clauses are in writing and signed by the customer;
  • Register terms of trade on the PPSR before goods are supplied;
  • Ensure the registration states the interest is a ‘purchase money security interest’;
  • ROT clauses should secure all monies owed to the supplier;
  • Ensure the terms cover future advances or ongoing sale of goods; and
  • Ask your customer to waive their right to be notified of the registration.

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