At least once a week I’m asked to review a set of Terms
& Conditions for ‘compliance’ with the PPSA.
I’ve always been a little amused by this idea given that
much of the manner of the PPSA’s introduction was based on reflecting how
creditors had, in practice, been securitising the payment obligations of their
debtors rather than dictating how this should be done going forward.
Generally, in view of the nature of my client base, I’d need
to do little more than check to make sure there was a half decent Retention of
Title (ROT) clause present and, if they hadn’t already been added, suggest a
few waivers of some of the obligations that the PPSA might otherwise require of
creditors.
However, this morning I came across an ROT clause where PPSA
compliance clearly was an issue.
The clause in question read as follows:
The Supplier and the
Buyer agree that ownership of the Goods shall not pass until:
(a) The Buyer has paid the Supplier all amounts
owing to the Supplier; and
(b) The Buyer has met all of its other
obligations to the Supplier.
Aside from a touch of redundancy with (a) being pretty much
covered off by (b), my main concern was over the wording at (a).
The PPSA gives suppliers the
opportunity to take a Purchase Money Security Interest (PMSI) ‘super priority’
where their interest is over collateral that secures its own purchase price.
The alternative to collateral securing its own purchase price would be for
the identified collateral to be taken as security for a broader description of
amounts owing – such a broader description would not necessarily qualify for
the PPSA’s super priority treatment.
Unfortunately, the wording used at (a) above states that the
Supplier is treating the goods they are selling as collateral against “all
amounts” they may be owed and therefore offers up a ‘broader’ description of
what is being secured than would arguably qualify for PMSI super
priority. I am acutely familiar with circumstances where insolvency
practitioners have successfully argued this specific issue!
Given that there is remarkably little difference between (a)
and (b), I suggested that (a) be rephrased along the following lines:
The Supplier and the
Buyer agree that ownership of the Goods shall not pass until:
(a) The Buyer has paid the Supplier the full
purchase price for those Goods; and
(b) The Buyer has met all of its other
obligations to the Supplier.
While it might be a natural reaction on the part of
suppliers to attempt to make their security interests as all-embracing as
possible, when it comes to the PPSA and its PMSI super priority, it could be
said that ‘less is more’. Or, at least, that
a narrower, more focused interest is likely to be more effective.
