PPSA for suppliers
The PPS Act and businesses that supply goods
It is not currently common practice for businesses that supply on consignment or retention of title terms to seek security or to protect their interests by registering on the ASIC Register of Charges.
That type of protection has not previously been necessary (or possible). Suppliers could simply rely on their continuing ownership rights to be able to recover goods supplied if the customer did not pay.
How does the PPS Act change this?
From 30 January 2012, businesses can no longer simply rely on ownership rights. Under the PPS Act, suppliers will need to register their supply agreements as security interests on the Personal Property Securities Register and they will need to make sure that:
- the interest is properly registered and correctly described; and
- registration occurs before any goods are supplied.
Special rules apply to security interests created in relation to consignment stock or goods supplied under retention of title terms. If that type of security interest is registered as a "purchase money security interest" before the goods are supplied, the security gains a "super priority" that beats most other competing security interests. But if the registration is not conducted correctly and at the appropriate time, the protection provided by the security interest is weakened and potentially lost.
What action is required?
Suppliers should act now by:
- reviewing the terms of their supply arrangements to ensure that their retention of title or consignment provisions give them adequate protection;
- ensuring that their supply arrangements are under a written contract or evidenced in writing; and
- developing new processes to ensure that their supply arrangements are agreed in writing by the customer and registered in the correct form before goods are supplied.
What about existing arrangements?
Existing arrangements will be covered by transitional provisions and may not need to be registered on 30 January 2012. But this only applies to arrangements that are covered by an ongoing agreement, and only in relation to goods supplied before 30 January 2012.
If your retention of title provisions are included in order forms, invoices or delivery documents, you need to review these arrangements now.
How do I get more information?
If you would like further information about security agreements and the registration of purchase money security interests, speak to your usual Maddocks contact or call a member of the Maddocks Personal Property Securities Team.