Since the introduction of the Personal Property Securities
Act (PPSA) your Retention of Title (RoT) clause is treated as a security interest. Under the PPSA, any security interest over
non-real estate property will be ineffective unless that security interest is perfected. To all intents and purposes the only way to
perfect a security interest is by registration
on the Personal Property Securities Register (PPSR).
When do I need to
register?
The PPSA provides for early registration in anticipation of
a security interest being created; provided your anticipation is reasonable. It could be considered reasonable, for
example, to lodge a registration once a customer’s credit application had been
approved but somewhat less reasonable to lodge a registration against someone
on the grounds that they weren’t completely dismissive when you cold-called
them last week!
Another consideration in determining how early to register
is the fact that, where an administrator or liquidator has to determine the
priority between two competing security interests, if all else is equal, they
will give priority to the security interest that was registered
first and not to the security interest that was created first.
If you are supplying goods to be used as part of your
customer’s inventory (eg, for on-sale, incorporation into an end product or
consumed as part of a production process) then you should make sure your
registration is lodged before your customer takes delivery of your
product. If you miss this deadline then
your security interest will be ineffective against that delivery but, if repeat
trade is involved, will be effective over subsequent deliveries.
Where the goods in question are non-inventory items you have
a little bit more of a cushion, of up to 15 days, from when your customer takes
possession of the goods.
How do I register?
I’ll cover setting yourself up as a Secured Party on the PPSR and identifying your Grantor correctly elsewhere on this blog so, for this article, I’ll
just focus on that element of registration that relates specifically to
describing your security interest.
I’ll look specifically at lodging a registration on the PPSR
itself as, although there are third party providers who have more streamlined
registration facilities (such as NCI), the guidance is readily transferable.
In
answer to “What is the collateral type?”
you should be selecting “Commercial”
wherever you are trading with a business which has an ABN. If you are selling timber to a home handyman
who is building a pergola for himself in his back yard then that would almost
certainly be classified as a Consumer
purchase.
I’ve
already written quite a bit on this blog about the differences between Transitional and Not-Transitional as well as the on-going arguments concerning the
two – for now, let’s proceed on the basis that we are registering a security
interest on a new customer and select Not-Transitional.
(Skipping
the entry of your Secured Party Group number)
We’re
now asked to describe our Collateral.
Collateral
means the ‘thing’ that’s being used as security. When you take out a mortgage your bank takes
a security interest over your home – your house is being used as the Collateral
for your mortgage. If you don’t repay
your mortgage the bank gets to collect their collateral. Similarly, when you are selling your goods
subject to a Retention of Title clause, your security interest is your ability
to get your goods back if they are not paid for – your collateral is the goods
you supplied.
While
at first glance there seems to be quite a wide range of choices when it comes
to describing your collateral, a second glance quickly reveals that there isn’t
much of a choice at all!
Unless
the goods you are supplying are motor vehicles, watercraft, aircraft or ‘agriculture’
the appropriate collateral class for RoT trading will be ‘Other Goods’. Whether it be hose pipes or hair spray,
footballs or fusion reactors, to the PPSR they are simply ‘Other Goods’.
Having
selected ‘Other Goods’ click on the Use collateral class button:
And
find yourself with the opportunity to enter a description of the goods you’re
supplying.
While
this is not a mandatory field, it is sensible to add some description here if
for no other reason than to help third parties understand more about the nature
of your security interest. However, if
you are too specific you risk leaving loopholes for others to exploit as well
as making a rod for your own back should you later supply a product that wasn’t
included on your original description.
As
a general rule I recommend something simple along the lines of “Collateral supplied by the secured party”.
Next
you have to describe the duration of your registration:
At
this point you’ll probably need to be reminded of the way in which the PPSR
charges for registrations.
For
a registration of up to 7 years the PPSR charges $8.00
For
a registration of between 7 and 25 years it charges $40.00 and,
For
an indefinite registration it charges $140.00.
Most
of the companies I advise choose to register for 7 years. A registration can always be extended later,
if necessary.
We
now come to, potentially, the most dangerous part of your registration; the bit
that will either help you achieve a super-priority for your RoT or, possibly,
invalidate it altogether. And yet the
PPSR presents these to us, almost as an afterthought, as if it is not something
that should trouble us at all.
Purchase Money Security
Interest
Otherwise
known as a PMSI (pronounced ‘pimsy’), this is the box that needs to be ticked
in order to give your humble RoT a super-priority over virtually all other
claims. A PMSI is a security interest over collateral that secures its own
purchase price. That is probably not
expressed in a familiar manner but it is, effectively, the very definition of
what a Retention of Title clause is all about.
If you don’t tick the PMSI box then you will not get your
super-priority rights.
Inventory
I’m
sure the PPSR thinks it’s being helpful by suggesting we look up part 9.5 of
the Personal Property Securities Act 2009 if we want to know the definition of
inventory but I can tell you right now that you’re more likely to come away
from the experience with a headache than any sort of enlightenment!
Unless
you are engaged in something particularly fancy then you should be OK with the
definition I gave for inventory earlier on in this piece, ie, goods that are for
on-sale, incorporation into an end product or consumed as part of a production
process. If you are selling goods that
will be treated as inventory items by your customer and do not tick this box
then you risk invalidating the whole of your registration.
Control
It
is difficult to think of scenarios where you might be selling goods subject to
a Retention of Title yet still retain control of those goods – it’s the sort of
area that is more likely to crop up with banks holding a security interest over
the bank accounts held with them. I’ve
not yet had occasion to recommend any RoT supplier tick the ‘subject to control’
box.
Subordinate
It
is a little strange that on a register all about trying to achieve priority you
have a box that allows you to concede priority to another registration. Again, I’m struggling to think of a suitable
scenario where this would be an issue for an RoT supplier and, as with issues
of control, I’ve not had occasion to recommend any RoT supplier tick this box.
Proceeds
One
box that should definitely be ticked by the RoT supplier is the Proceeds
box. When the PPSA was introduced it
gave a ‘free’ extension to proceeds to all RoT suppliers. If your goods have not been paid for but your
customer has on-sold them then your priority security rights can extend to any
monies arising directly or indirectly from that on-sale. Tick this box!
You
have an opportunity to put your own text into the proceeds description box but
in most cases it makes more sense to leave it blank so the default wording “all
present and after acquired property” can apply.
Once
this is done, the collateral stage of the registration is complete and you move
on to the final step of identifying your Grantor/Customer – something I have
addressed in previous articles but will probably summarise again in a
subsequent post.
As
usual, if you have any queries or concerns, feel free to use the comments area
below.
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