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Sunday, 27 April 2014

New Look for the PPSR Blog

I've been posting articles on this blog for just over two years now and although I don't get many comments the Blogger statistics suggest that there are plenty of people reading the blog and now and again I'll come across an article somewhere citing my blog as the source of their information (which is nice).

However, I have been getting a little concerned that, having ended up at one of my articles following a Google link or similar, the layout of the site didn't necessarily make it very easy for casual visitors to see what other PPSA related topics were covered on the blog.  So, I've taken the opportunity to give the site a bit of a face-lift and try a different format.

The new look is designed to give the visitor greater control over how they view the articles posted via a new menu bar:

New blog menu bar image


Each of the options allows for a different way of viewing the blog, from the, more traditional, "Classic" look, which is basically all of the articles, in full, laid out one after the other, through the 'Flipcard', which shows a small title card for each of the articles that you can click on to reveal the full post, and up to some more 'interesting' layouts which... well, I'll let you find out for yourselves.

Anyway, the point isn't to be fancy or clever but to present the articles in the most accessible manner available to me with my limited web skills.  

If the changes work for you and help you find something helpful more easily then that's great and I'd appreciate you letting me know. But, more importantly, if the new site design is causing you problems and actually making it harder for you to find what you're looking for then please, don't just click away in frustration, let me know and I'll try to fix the problem.

Many thanks for visiting.

Paul



PPSR Registrations Against Sole Traders

While the PPSR allows you to describe your registration as being in respect of a security interest arising from either a Commercial or Consumer transaction, when it comes to registering that interest against an individual this differentiation appears to have no real effect.

Registrations against a sole trader entering into a security agreement on behalf of their business still have to be lodged against the individual as opposed to the business.

Any registrations against an individual must identify the individual by their full name (such as would appear on their drivers licence) and date of birth.  

The fact that the sole trader has a valid ABN (Australian Business Number) which featured prominently on their application for credit is neither here nor there and the PPSR provides no facility for entering this number as part of the registration.  

But what if the sole trader is acting as the trustee of a Trust?  The PPSA allows for the registration of security interests against Trusts using the Trust ABN - doesn't this allow a creditor to avoid having to use the sole trader's name and date of birth?

Unfortunately, the answer is far from clear.  

The Personal Property Securities Regulations 2010 provides the following definition for an individual:

individual:
                (a)    includes a sole trader who has an ABN for the enterprise for which the security interest is granted or held; and
               (b)    does not include an individual who is a partner in a partnership or a trustee of a trust if the partnership or trust has an ABN for the enterprise for which the security interest is granted or held.

Well, what's unclear about that? (b) seems to be saying quite clearly that if the sole trader is using a Trust ABN then they don't have to be treated as an individual for the purposes of registration.  

Agreed, but if we look further at the Regulations they go on to state that the prescribed details for lodging a registration against a trustee are:

               (a)    for a trustee that is an individual — the details mentioned in the item of the table in clause 1.2                        that:
                          (i)    applies to the trustee; and
                         (ii)    has the lowest item number;

The table in clause 1.2 referred to here takes us back to the instructions stating that the details needing to be provided are the full name and date of birth of the individual as found on their drivers licence!

Now, while I would suggest that the intention of the Act is probably to allow for sole traders who are acting as trustees for Trusts that have ABNs to have registrations lodged against the Trust (as an organisation) and be identified by that Trust's ABN, the relevant wording is so convoluted and unclear that, in the absence of legal precedent, a case could be made either way.

Wednesday, 16 April 2014

PPSA and Proof of Debt

When a trade creditor is required to complete a Proof of Debt form (Form 535) it is easy for them to believe that they are merely documenting, for administrative purposes, the particulars of the amount they are owed.  Indeed, there is not really any indication on the form itself to disabuse them of this notion.



However, an important function of Form 535 is to determine the relative voting rights of creditors. 

Section 5.6.24 of the Corporations Regulations 2001 states:

(1)  For the purposes of voting, a secured creditor must state in the creditor’s proof of debt or claim:
                     (a)  the particulars of his or her security; and
                     (b)  the date when it was given; and
                     (c)  the creditor’s estimate of the value of the security;
unless he or she surrenders the security.

In other words, any failure by the creditor to provide details of their security may be interpreted as a surrender of their rights to that security.

Under Corporations law, creditors are only allowed to vote at creditors’ meetings to the extent that they are unsecured

For example, a PMSI registered creditor with a retention of title over goods they have supplied may be owed a total of $20,000 but, following a stock check at the buyer’s premises, it is found that only $8,000 of that creditor’s goods can be identified.  Because the creditor’s security is limited to the availability of the goods they supplied, they are only a secured creditor for $8,000 of the amount owing and an unsecured creditor for the $12,000 balance.

Our PMSI holder can therefore vote with $12,000 of voting rights at creditors’ meetings while still retaining their secured creditor status over the $8,000 for which stock can be identified.

This is in line with the second part of 5.6.24 which states:

(2)  A creditor is entitled to vote only in respect of the balance, if any, due to him or her after deducting the value of his or her security as estimated by him or her in accordance with regulation 5.6.41.
(note: regulation 5.6.41 reflects the information required at part 2 of Form 535)

However, if there has been any vagueness or lack of accuracy or clarity in completing the details and values of any security being asserted at part 2 of Form 535, any votes cast by the creditor will be interpreted as an intention by them to be treated as an unsecured creditor for up to the full amount of their debt.

The third part of 5.6.24 refers:

(3)  If a secured creditor votes in respect of his or her whole debt or claim, the creditor must be taken to have surrendered his or her security unless the Court on application is satisfied that the omission to value the security has arisen from inadvertence.

Liquidators are frequently chasing creditors for completion and return of Proof of Debt forms before formal stock takes have been completed, encouraging ROT holders to be substantially less than specific on their Form 535.  Should that ROT holder then turn up to vote at a meeting of creditors – whether over the creation of a committee of inspection or to rubber stamp a liquidator’s remuneration – they may suddenly find themselves stripped of all their security rights.

There is legal precedent (Young v ACN 081 162 512 [2005] NSW Supreme Court) for a creditors’ vote on a matter as mundane as the adjournment of a meeting being deemed sufficient to strip an unpaid creditor of their secured creditor status.

It is quite sobering to imagine a supplier, upgrading their terms & conditions to ensure the effectiveness of their Retention of Title clause, registering that ROT on the PPSR in order to maximise its priority, maintaining detailed records of orders, deliveries and payments only to find that all their efforts to protect themselves have been undone by their participation in a vote to approve the adjournment of a creditors’ meeting.

Is there a lesson to all this? 

Simply that creditors should be aware of what they are actually doing when they complete a Form 535 Proof of Debt form and that, unless they have specifically identified the extent to which they are secured/unsecured on that form, any subsequent vote cast by them at a creditors’ meeting could result in them losing any security rights to which they had been entitled.