Are you aware of the Personal Property Securities Act “PPSA” which came into force on 1 May 2002?
The Act reforms the law relating to security interests in personal property. It affects lending, leasing and other types of credit-providing activities. The PPSA contains rules for determining the priority between security interests in the same personal property. Personal property is given a wide definition by the PPSA. With few exceptions it covers any property someone can own other than land. It can also change the order of priority of secured creditors and the rights of suppliers of stock and equipment in the event of a liquidation or receivership.
Romalpa Clauses no longer sufficient
In the past clients have commonly issued terms of trade which provide for reservation of title in goods they have sold until such time as the goods have been paid for. In the event of liquidation or non-payment, the clients have simply uplifted their goods or stock. It is clear that if they have not registered their security interest on the Personal Property Securities Register, those goods in the event of receivership or liquidation may not come back to them, but will be available for a debenture holder or someone else with a security interest in those goods. Even worse, if they happen to uplift “their” goods prior to receivership or liquidation those goods may still be available to any debenture holder.
Consigned Goods may be lost
In the past consigned goods were never the property of the consignee. In law and in practice, the consignor could uplift the goods whenever he/ she wished. Such is no longer the case. If you have not registered your interest in the goods on the Personal Property Security register then the goods may be taken by the registered debenture holder. In the event of receivership or liquidation of the consignee the consignor may lose his goods. This can happen even though the goods are uplifted prior to the receivership or liquidation.
Private Debenture holders – Beware
Private debenture holders have to be particularly aware that the old rules no longer apply. In the past the first debenture to be executed ranked first unless specific accommodation had been given to a subsequent debenture holder. The date of execution of a debenture is now irrelevant when working out priorities. What matters now is the date of registration on the Personal Property Securities Register. The first debenture to be registered ranks first.
Leased Goods – Deemed Security Interests
Clients who lease goods should know that where a lease is for a term greater than one year the lessor must register his interest in the goods. Unless he does so, his goods may come under the charge of any debenture. Again, in the event of receivership or liquidation the lessor stands to lose his goods.
This can happen even though the leased goods were uplifted prior to receivership or liquidation.
It is very important that you get the proper advice if you are lending money or goods to third parties and especially if advancing funds to your own company.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.