Sell goods on credit? Then you’d better know about the PPSA

If you’re a business that sells goods to your customers on credit, the chances are that your terms and conditions contain a retention of title clause (whether professionally drafted or just copied from someone else). Many businesses of all sizes utilise retention of title clauses, which allow buyers to take possession of goods on credit with ownership in the goods being retained by the seller until full payment is made.

Previously, a retention of title clause in a contract or customer terms and conditions was sufficient for a business to protect its ownership in those goods. These clauses were particularly useful if a buyer became insolvent, allowing the seller to get the goods back from a liquidator.

However, with minimal fanfare or public education, a new legal regime commenced in January that makes some significant changes to the way in which businesses will need take security over their assets.

The Personal Property Securities Act 2009 (Cth) (‘PPSA’) covers traditional security interests such as mortgages and charges, and in a significant change to previous law, now extends to a number of other interests in property including retention of title arrangements.

As a consequence of the introduction of the PPSA, the following steps must be taken by a business to fully protect its interest in goods where possession but not title has passed:

  • any arrangement for  goods to be sold on a retention of title basis must be registered on the PPS Register; and
  • retention of title clauses in terms and conditions must be re-drafted to reflect PPSA provisions and requirements.

If a business fails to register its retention of title arrangements, the retention of title clause on its own may not be sufficient for a seller to claim back possession of the goods. The end result being that in a liquidation scenario, the business would rank as a lowly unsecured creditor.

This marks a significant change to how businesses have operated for some time and will require a review of terms and conditions and processes to register retention of title arrangement on the PPS Register where appropriate.

Indeed, while the PPSA allows for a single ‘security agreement’ between a buyer and seller to govern all transactions between them, there will be circumstances where a business has an overwhelming number of buyers, giving rise to an equally overwhelming number of security agreements. The registration of a large number of security agreements will be both costly and time consuming with the registration fee alone $130.

Businesses need to consider the benefits and protection the registration of their security interest will provide versus the costs registering all retention of title arrangements. Security agreements with customers at risk of insolvency or with a large credit authority should be prioritised for registration as soon as possible.

Over the past few months we have been struck by the number of businesses simply unaware of the introduction of the PPSA and the severe risks it introduces.

For further information on changes brought about by the PPSA and how this might affect your business, please contact Certus Legal Group.