For suppliers of goods and equipment, the Personal Property Securities Act 2009 (Cth) (PPSA) is a fundamental requirement to protect you if your customer becomes insolvent. After all, the PPSA has been active since 2012 – well over a decade!

If you haven’t started registering on the Personal Property Securities Register (PPSR) by now, you should speak to a legal professional about doing so ASAP… before one of your customers faces insolvency without paying you.

If you are currently registering, you will know that the PPSA is extremely strict. The protections provided by the PPSA can be lost if not followed properly and suppliers can find themselves at the bottom of the creditor pile in customer insolvencies without any prospect of receiving a dividend for their unpaid debt. That’s legal speak for 0 cents in the dollar. Worst still, without valid PPSA registrations, suppliers risk losing title to goods and equipment supplied and not just the money owed for them. Ouch!

The PPSA requirements all start with the contract between you and your customer. Usually this is your Terms & Conditions document. We see dozens of Terms & Conditions every week and have prepared a helpful guide for the top 10 risks to avoid.

In this current challenging economic environment, don’t lose any protections that are available to you.

Our top 10 PPSA risks to identify and avoid in your Terms & Conditions are:

1. No written contract

The PPS Act requires all security agreements to be in writing. Without a written agreement between you and the customer, you’re not complying with the PPSA and there can be no security interest created. Ultimately this means you will not be able to register on the PPSR.

2. No PPSA clauses in the written contract

If you do have a written agreement, you need to make sure that you have the proper PPSA clauses in it. Those clauses must do several things, such as create a security interest in the goods that are being supplied and give you the right to register on the PPSR. Often we see poorly drafted clauses where no security interest is actually created. Remember – just because your T&Cs refer to the PPSA, doesn’t mean you automatically have the right to register on the PPSR.

3. No retention of title clause

A retention of title clause ensures that you continue to own all goods that you sell until you’re fully paid. Without a clause like this, ownership of those goods can pass to the customer on delivery – even if they haven’t paid for them. This is fundamental to the PPSA because it’s what gives you a continuing interest in the goods after you’ve sold them. Without a retention of title clause, any PPSR registrations that you make could be invalid.

4. Incorrect party names

You must ensure that all party names are correct in the contract because they directly correlate with your PPSR registrations. For example, the “Supplier” in the Terms & Conditions becomes the “Secured Party” in the PPSA, and the “Customer” becomes the “Grantor” in the PPSA. Any PPSR registration that you make with incorrect names can make that registration invalid.

5. Separate contracts

Be careful of provisions that create separate contracts with a customer when delivering or paying by instalments. This directly impacts on your PPSA protection because separate contracts can create new security interests requiring PPSR registration. This is easy to miss and can unintentionally lead to breaks in your PPSA protection and expose you to lost security.

6. Updates to the Terms & Conditions

As a supplier, ensure that you have the ability to update your standard Terms & Conditions of trade from time to time. Without this, any update to your Terms could be deemed to create a new contract requiring a new PPSR registration. Again, this can lead to breaks in your PPSA protection and expose you to lost security.

7. Variations to the Contract

The same logic applies to any contract variations that the parties agree to (including in your Terms & Conditions). You must ensure that variations are implemented properly and do not negatively impact on your PPSA protection. If you’re not sure, get the variation checked by your legal team!

8. No reference to a PMSI

A Purchase Money Security Interest (or PMSI as it’s often referred to) is a type of security interest that gives the holder a “super priority”. In a customer insolvency situation, PMSI holders come before ordinary secured creditors (i.e. those with an ordinary PPSR registration) and before other PMSI holders who register later in time (i.e. first in best dressed). The super priority is available in limited situations, such as when you supply goods on credit. Make sure your written security agreement refers to PMSI rights and make sure you’ve registered correctly if you do have a PMSI.

9. No claim for Proceeds of Sale

Maximise the value of your security by taking an interest in the proceeds of sale for any goods you have supplied. This is particularly important if it would be difficult to repossess any unpaid goods on site (e.g. they become attached to another product) or they would be difficult to resell (e.g. the goods are perishable). If you only take an interest in the goods themselves reduces the value of your security.

10. No General Security Agreement for services

The PPSA regime only applies to personal property (i.e. goods) and it does not typically cover any services that you provide. If you are a service-based business and you are worried about customers going broke without paying you, there is one way to use the PPSA regime to your benefit. But you must have the proper clauses in your Terms & Conditions or other contract to do so. It’s called a General Security Agreement and takes a wider level of security in your customer’s personal property, much like a bank would.

Disclaimer

This article is designed and intended to provide general information in summary form. The contents of this article do not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as legal advice. Please seek legal advice about your specific circumstances.