What to do when your customer goes bust!

While it would be great if lodging a registration on the PPSR actually stopped your customer from going insolvent, that’s probably a little too much to expect from a $6 registration.  However, your registration will give you an important leg up in trying to recover something from the inevitable mess caused by the insolvency – specifically, any money you are owed for unpaid for goods.

Your first action (after putting a hold on any future deliveries) should be to write to the insolvency practitioner.  If you haven’t already got it, you can find contact information for the liquidators via ASIC .  Although you can write a letter, it is probably best if you use email.

Your email needs to put the liquidator on notice that you are owed money and that you want your recovery rights to be respected.  You will also want to start the process of gathering information to ensure any value you are able to recover is maximised.

You will, therefore, need to include:

·         A statement of account showing what is owed and/or outstanding.

·         A listing/description of what goods have been supplied (including any information that might help the liquidator identify the goods on a factory/warehouse floor).

·         A copy of your Terms & Conditions clearly showing your security rights (usually a Retention of Title clause) and some indication that the insolvent company actually accepted those terms – most commonly a copy of the Credit Application completed by the company.

·         A copy of your PPSR registration (the Verification Statement) – the registration number would probably be sufficient as the liquidator will, as a matter of course, obtain details of all the registrations lodged against the insolvent company.

·         A request for an urgent stocktake of your goods held at the insolvent company’s premises (or anywhere else where they may be being held on the company’s behalf).

·         A request for access to the company’s premises to identify any goods you have supplied. And

·         A demand that the liquidator ensure that any sales of your goods be put on hold and not go ahead without your express consent in writing.

It is important to remember that, even though you may not want your goods back – perhaps they have been specially made or adapted for this one customer – you still need to assert your right to recover them so as to maintain leverage over a liquidator who may well want to sell them as part of an end product to maximise income from the company’s assets. Unless you wash your hands of them, the liquidator will need your permission to deal with those goods and therein lies the opportunity for a deal to be made.

Have you sold tyres to a trucking company?  Getting used tyres back may not be a particularly attractive idea for you, but a liquidator will have a much better chance of making a profitable sale of vehicles with tyres than without.  If the liquidator wants to sell trucks with your tyres on them, your registration gives you the opportunity to insist that the liquidator pays you what you are owed out of the sale proceeds.

Section 64 and Maintaining Access to Finance

What is a Section 64 letter?

Note: It is important to have an understanding of a supplier's right to 'proceeds' in order to properly appreciate the role of Section 64 of the PPSA.  You can get a quick briefing on proceeds here.

Section 64 letters are designed to fix the problem caused when a supplier’s claim to proceeds of on-sale conflicts with a financier trying to get ‘clean’ security for an accounts receivables package (also known as debtor financing).

If a financier is being asked to finance a business’s on-sale of goods it is reasonable for them to want to take security over the money the business will receive from that on-sale.  However, where the original supplier of those goods has a Retention of Title clause and has registered it correctly as a PMSI, they are entitled to the first ranking security right over monies received from the on-sale of their unpaid-for goods.

Unless a compromise is reached the buyer may have his access to finance curtailed and the supplier will possibly run a greater risk of late payment or even non-payment.

The compromise included in Section 64 of the PPSA, involves the financier giving the supplier 3 weeks’ notice of their intention to lodge a registration over their customer’s proceeds from sales.  The registration they lodge at that time will take precedence over the supplier’s – BUT ONLY FOR THE PROCEEDS ELEMENT – and, in return, the supplier’s security rights will transfer from the proceeds of on-sale to the proceeds from the financier’s finance package.

Sometimes the 3 week wait is too much for the financier and their customer and, as a result, the supplier will be urged to discharge their registration, allow the financier time to lodge their registration, then put their registration back in place.  This is NOT beneficial to the supplier and would mean that they would be sacrificing their right to proceeds without any commensurate right to a share in the finance to show for it.

When do I have an interest over 'Proceeds'?

What does ‘Proceeds’ mean?

The term 'proceeds', in this context, refers to money that comes to a buyer from the on-selling of goods supplied to the buyer by the original supplier of the goods.

If a supplier has a Retention of Title right and registers it as a PMSI (see here) they get the opportunity to have their security interest extend to any money their customer receives from on-selling the supplier's unpaid-for goods.

While in most cases (unless they involve a motor vehicle identified by its VIN number, for example) the supplier's right to recover their unpaid goods ends with their buyer's on-sale of those goods, the PPSA allows a supplier's PMSI security interest to 'automatically' transfer to the proceeds of on-sale of those goods as soon as their secured 'grip' over the original goods is lost.

While this can be a useful ‘added extra’, proceeds claims can be messy and, typically, will only be successful when the proceeds monies are received AFTER a liquidator has been appointed to the customer’s business.

I've yet to see rights over proceeds used in a defence against a liquidator's preference claim and, whilst I can envisage some scope for success, I can also imagine that such a defence would not be particularly well received by said liquidator.

What is a PMSI?

What is a Purchase Money Security Interest?

A Purchase Money Security Interest (PMSI) is defined by the PPSA as occurring where ‘collateral secures its own purchase price’.

This happens when a supplier sells their goods subject to a Retention of Title right – it also happens when goods are sold out of a Consignment Stock arrangement or Leased.

The PMSI designation is important because it allows the supplier to enjoy a ‘super priority’ over the goods they are selling that will rank higher than any bank’s general security interest even when the bank’s interest was lodged earlier.

However, the security interest is ONLY over the supplier’s unpaid stock as long as it is in their customer’s possession.  

A PMSI security right MUST be identified on the supplier’s PPSR registration if it is to achieve its maximum potential effectiveness.

PMSI registrations over goods that will form part of the buyer's inventory (eg, for on-sale, or inclusion in a product for eventual on-sale) must be lodged before the goods are delivered to the buyer although the PPSA allows an additional 14 days' grace for any other goods.

Note: Suppliers should only 'tick the PMSI box' if they have been granted PMSI rights (eg, they have a Retention of Title over their goods) - ticking the box when a PMSI right has not been granted may invalidate an otherwise effective registration.

Is there a deadline for lodging a PPSR registration?

When should I lodge a registration?

Once a liquidator is appointed to a debtor, they are allowed to ignore any security interests registered during the 6 months leading up to their appointment if they hadn’t been lodged within 20 business days of the security agreement being formed. 

In a trade credit context, the security agreement is usually the completed credit application incorporating the supplier's Terms & Conditions (which, in turn, would be expected to include their Retention of Title right).

Thus, if a supplier fails to lodge their registration within 20 business days of receiving a credit limit application, they risk losing their security rights if a liquidator is appointed within the next 6 months.

Separately, the supplier needs to register their Retention of Title right before they deliver their goods to their customer in order to make sure they don't lose any Purchase Money Security Interest (PMSI) rights to which they might be entitled.  Although, where the goods represent a product that will be kept by the buyer for their own use, the PPSA allows an additional 14 days' grace.

PPSA Clauses in Terms & Conditions

Firstly, it needs to be said that you do not need specific PPSA clauses in your Terms & Conditions of trade in order to lodge a registration on the PPSR, only the presence of a security right.  For most trade credit suppliers, this security right will be a Retention of Title clause – if you have one of these in your T&Cs and those T&Cs have been accepted by your customer, you can go ahead and register that security right on the PPSR.

This often prompts the question, if all that is needed is a one-sentence Retention of Title clause, why have multiple paragraphs of PPSA related text been included in the T&Cs?

Although not an unreasonable question, this is a little like hearing that you only need to drink water to avoid dying of thirst, and then asking, why bother with beer, wine and coffee?

So, in what way do PPSA specific clauses help us survive our mundane existences and allow us a temporary respite from the ever-present agonies of life?  Or, to put it another way, how do PPSA specific clauses make things a little easier for us?

Their first purpose is one of transparency and understanding.  Clauses will often start off by saying something along the lines of:

“You hereby acknowledge that these Terms and Conditions of Trade constitute a Security Agreement which creates a Security Interest in favour of [the supplier]…”

It has only been since the introduction of the PPSA that Retention of Title rights have been properly deemed to represent a form of security and it is helpful to draw a customer’s attention to this, particularly when the supplier goes on to add that, as a security right, they intend registering it on the PPSR.

A lot of terms then go on to suggest that the buyer/customer should sign documents or pay costs facilitating the supplier’s PPSR registration.  I don’t know if I’ve led an unduly sheltered life, but I’ve not come across any instance where any action has been required of a trade credit buyer in this regard and certainly haven’t heard of any additional fees being passed on, but, apparently lawyers think suppliers will feel comforted by having that option.

While there might be a little more repetition, the next purpose of the PPSA specific clauses will be the ‘waivers’.

The PPSA places a surprisingly large number of obligations on the ‘secured party’ to keep their customers advised of any actions they take.  I have this idea that the drafters of the Act had a visual image of the supplier being a huge unfeeling multinational bureaucracy and their customer being a little old lady with cats. 

In its vanilla form, the Act requires the supplier to keep their customer advised of anything and everything relating to the security interest – letting them know of the registration (and any amendments to it), giving notice of any intention to recover unpaid-for goods, advising of plans to dispose of any recovered goods, sending statements detailing whatever payments they might have received from on-selling the recovered goods, sending statements for anything they’ve recovered that hasn’t been disposed of, and providing the customer with an opportunity to object (!).

Fortunately, most obligations of this nature can be contracted out of and including clauses in T&Cs is probably the most effective way for a supplier to dodge these administrative bullets.  Hence clauses along the following lines:

“The Purchaser and the Supplier agree that the following provisions of the PPSA do not apply to the enforcement by the Supplier of its security interest in the Goods: sections 95, 118, 121(4), 130, 132(3)(d), 132(4), 135, 142 and 143.”

While I won’t go into each potential waiver/exclusion in detail (and can’t guarantee that I’ve spotted them all), the following table should help as a quick guide to what aspects of the Act are addressed in each of the ‘avoidable’ or ‘enhanceable’ sections of the Act.

Section	Issue addressed	Comment
95	Secured party must give notice of removal of accession	http://ppsr-blog.blogspot.com/2014/06/ppsa-accessions.html
118	Enforcing security interests in accordance with land law decisions	A waiver of the Secured Party’s obligations to provide notice to the grantor.
121	Enforcement of security interests in liquid assets	A waiver of the Secured Party’s obligations to give notice to the grantor of their intention to enforce their security interest.
123	Secured party may seize collateral	There’s a requirement here for the Secured Party to give notice to the grantor of their intention to seize.
129/130	Notice of disposal of collateral	Waiver of the Secured Party’s obligations to advise the grantor of their plans to dispose of collateral in their possession if a default has occurred.
132	Secured party to give statement of account	Waiver of the Secured Party’s obligation to provide a statement regarding any collateral they have disposed of as a result of default.
135	Notice of retention of collateral	Waiver of the Secured Party’s obligation to notify the grantor that they will be retaining collateral in their possession.
137	Persons entitled to notice may object to proposal	Removing the grantor’s right to object to any intended disposal of recovered collateral.
142	Entitled persons may redeem collateral	Waiver of the grantor’s right to priority when it comes to redeeming recovered collateral from the Secured Party.
143	Entitled persons may reinstate security agreement	Withdrawal of the grantor’s rights to reinstate a ‘broken’ security agreement.
157	Verification statements—secured parties to give notice to grantors	Removal of the Secured Party’s obligations to send the grantor a copy of the PPSR Verification Statement every time a registration event occurs.  See also http://ppsr-blog.blogspot.com/2014/05/notifying-grantor-what-are-your.html
275	Secured party to provide certain information relating to a security interest	The ‘vanilla’ PPSA requires the Secured Party to divulge relevant information about their security interest to any interested 3rd party unless the Secured Party and grantor have agreed they will keep such matters confidential.

The PPSR doesn’t understand Retention of Title!

On 23/07/2018 AFSA, the operators of the PPSR, issued a news briefing regarding how the PPSR could assist a building developer in “using the PPSR to secure its retention of title in the material it supplies”.

Given that it would be unusual for a building developer to be doing the ‘supplying’ when it comes to materials, I thought I’d get a copy of the information sheet AFSA were promoting.

Sure enough the PPSR Case Study 11/V1, started with:

“Scenario – building developer uses the PPSR to secure its retention of title in the materials it supplies ...”

The information sheet goes on to elaborate as follows:

“Developer Sceneview owns land on which it has permission to build a warehouse.

It contracts with Projex to build the warehouse. The contract provides that Projex sources the material needed for the build process.

Projex will submit invoices to Sceneview for works and materials, whether the materials are on-site or off-site.

Sceneview has a security interest, under the contract, in all building materials in the possession of Projex, to secure performance of Projex’s obligations under the warehouse contract.

Sceneview registers that security interest against Projex on the PPSR.”

I don’t know about you, but the first thing that struck me was that it was Projex, as the supplier, that was most likely to hold a Retention of Title over the goods they were supplying.  While Sceneview may be contractually granted a security interest over goods in the possession of one of their contractors, such a right would not be a Retention of Title right.

The information sheet then hints that it knows that what it is describing is not really a Retention of Title right, because it goes on to suggest that ‘Sceneview’s’ registration will only defeat a competing registration by a bank by virtue of having been lodged earlier.  If the registration concerned a true Retention of Title right it would have been eligible for PMSI treatment and the relative timing with a bank registration would have been irrelevant.

I wrote to AFSA drawing their attention to their description of an ROT interest, not actually being an ROT interest and, a couple of days later, got a phone call from quite a pleasant lady who explained that they already had concerns internally over the information sheet in question and had been reviewing it even while it was being actively promoted as part of an email campaign. 

As anyone who has had dealings with civil servants will appreciate, there was no admission that an error might have taken place, nor any explanation as to why a misleading information sheet not only remained as part of the PPSR’s help documents (it’s still there at the time of writing by the way) but was then selected for specific dissemination to a wider audience. They were gracious enough, however, to acknowledge that, I was ‘not necessarily wrong’ in the error I had pointed out. 

Bless them.

Is a PPSR registration still necessary to defend against Preference claims?

In June 2016, I posted an article discussing, among other things, Justice Edelman’s ruling in Hussain v CSR Building products Limited concerning alleged preference payments made by FPJ Group Pty Ltd. 

The Corporations Act allows liquidators to claim back payments made by the insolvent company during the 6 months prior to their appointment – provided that those payments were in respect of an unsecured debt.

In Hussein v CSR,  Justice Edelman found that there were sufficient references in the Corporations Act to a Retention of Title right being, in substance, a form of security that, while in the circumstances CSR may not satisfy the definition of a ‘secured creditor’, their Retention of Title right was sufficient to render the debt they were owed ‘not unsecured’.  This, against the background of CSR not having registered their ROT on the PPSR!

This was a pretty controversial decision at the time but, two years later, we’ve finally got ourselves another judgment effectively reinforcing the idea that a Retention of Title right (whether registered on the PPSR or not) represents sufficient security to ensure that payments made against that security right are not treated as unsecured for the purposes of the Corporations Act.

Trenfield v HAG Import Corporation (Australia) Pty Ltd [2018] QDC 107 wasn’t an entire success for the supplier, however, because even though their ROT was sufficient to make payments eligible for consideration as being ‘not unsecured’, the question as to how much value in payments those ROT rights actually supported needed to be addressed. 

If a supplier sends goods worth $10,000 and invoices accordingly, at ‘day 1’ the supplier (assuming an ROT) will be secured for the full amount owed, however, if, by the time payment falls due $8,000 of those goods have been on-sold, then the supplier will only be a secured creditor for $2,000 of the money owed and an unsecured creditor for the balance. (Note: there's an earlier post looking at the 'value' of security here.)

Using this approach, the Court found that $473,291 of the $696,298.72 of payments received were paid in relation to an unsecured debt and thus were recoverable by the liquidators as the fruits of an unfair preference.

With both legal precedents involving ROTs that were not perfected under the PPSA’s rules, there is a lifeline for suppliers who either haven’t registered on the PPSR or lodged too late or with serious errors – at least as far as defending against preference claims is concerned. 

When it comes to attempting to recover unpaid for goods or their equivalent value from administrators and liquidators, suppliers had best make sure they have a valid PPSR registration in place (lodged in good time) because claiming that their ROT makes them ‘not unsecured’ will not cut it!

When should a PPSR registration be lodged?

In general terms, the answer is ‘as soon as possible’ and, in this context, that means, as soon as the supplier has a reasonable belief that they may be doing business with the grantor in question and that such business will involve the granting of a security interest.

In order to avoid falling foul of the Corporations Act, the supplier’s registration should be lodged within 20 business days of their security agreement being formed. For trade credit suppliers, that security agreement will usually be represented by the signing of the initial credit application by which the supplier’s Terms & Conditions of trade are accepted (provided, of course, that those T&Cs contain the supplier’s security rights – usually in the form of a Retention of Title clause).

If the registration is not lodged within that 20 business day period, the supplier runs the risk that, if their customer falls insolvent in the next 6 months, a liquidator will be able to use section 588FL of the Corporations Act to, effectively, ignore the registration.

I’ve written at greater length on the implications of section 588FL HERE.

Obviously, if the supplier misses that 20 business days window, they should still go ahead and register on the PPSR as soon as possible, it just means that they’ll need to keep their fingers crossed that a liquidator doesn’t get appointed during the next 6 months – once 6 months have elapsed with no liquidator in sight, the supplier can relax.

If we put aside for one moment the Corporations Act provisions, the other key timing issue concerns the effectiveness of your Purchase Money Security Interest (PMSI) rights.

As we know, Retention of Title suppliers, those providing goods on a Consignment Stock basis, and long-term leasers of equipment automatically qualify for having the security arrangements that those trading practices represent designated as PMSIs, thus entitling them to a super-priority over any earlier (or later) registered general security interests.

However, in order to ensure their PMSI right is effective, the registration must be lodged within specific time frames:

Where the Collateral is Inventory	Before the grantor takes possession of the goods
Where the Collateral is not Inventory	Within 15 business days of the grantor taking possession of the goods

Any registration lodged outside of those time frames will still be valid, but it won’t benefit from the super-priority that the PMSI designation would otherwise afford.

If repeat supplies are involved, suppliers should remember that even though they may have registered too late for the first few deliveries, a registration will still be effective over later deliveries.

Protecting Your Gear On Site

February saw the collapse of WA based builder Cooper & Oxley accompanied by scenes of subcontractors climbing over fences and evading security guards in order to attempt to recover tools and equipment that they had left on project sites.  You can find an example here.

Since then, there has been an understandable increase in advice being offered to subcontractors as to how they might be able to protect themselves.  What has been less understandable, however, is the oft-repeated suggestion that a registration on the PPSR might act as some sort of golden ticket allowing a subcontractor to recover any of their gear they might have had stored on site.

If you are selling goods subject to a right to recover those goods if you’re not paid for them, then a registration on the PPSR is essential if you want to be able to exercise that right against a liquidator or administrator etc.  Similarly, if you are engaged in a long-term hire of goods (and by long, I mean at least 2 years) then, again, registration is essential to protect those goods from falling into the hands of an Insolvency Practitioner. 

However, such leasing arrangements and conditional sale agreements are specifically deemed to create security interests under the PPSA; simply storing your tools on a building site overnight is not.

When a company goes into liquidation, the liquidator is entitled to treat any property that is used as collateral in a security interest as having vested in the insolvent company and thus available to be liquidated for the benefit of creditors.  The only real exception to this is where that collateral/security interest has been registered on the PPSR.

 

Because a subcontractor’s tools are not the subject of a sale (conditional or otherwise) to the insolvent company and are not being leased to them, the liquidator has no right to treat them as if they were the property of the main contractor. If they're not collateral in a security interest, there's no danger of them vesting in the insolvent company.

If that is the case, why do we read about subcontractors and tradies being locked out of sites, unable to recover their tools?

One of the first jobs a liquidator needs to do, on arrival, is to take stock and evaluate what assets the company might hold.  They can’t do this effectively (or fairly) if there is a steady stream of people marching onto the site and walking off with whatever property they can lay their hands on – some of it may well be their own but some of it may be the company’s and some may actually belong to other subcontractors.

In this sense, the liquidator is a little like the coroner arriving at the site of a freshly discovered body in popular American TV shows.  Their first job is to protect the integrity of the crime scene and then, gradually, determine to what extent the items found in and around that scene were relevant to the body and the means by which it came to be dead.  If you happen to have lost your car keys in that area, it will be understandable if you have to wait a while before you can get them back!

And so it is with a liquidator, they’ll need to ensure they can identify what goods belonged to the company and what belonged to subcontractors and then they’ll need to ensure that the right gear is made available to the right subcontractor.  To do this properly will, unfortunately, take time.  

From subcontractors I’ve spoken to, while the delay in getting their gear back is extremely frustrating, they do eventually get their stuff back and, if they don’t, it’s invariably because it had been taken by another subcontractor trying to grab what they could, presumably, in an attempt to offset money owed to them by the company.

Not only is a registration on the PPSR not necessary and will do nothing for the rights of the subcontractor in recovering their tools, it may even create confusion, leading to further delays in the subcontractor being reunited with their gear.

There’s been a suggestion that, while it won’t be perfecting a security interest, a PPSR registration might nevertheless serve as some sort of ownership document ‘proving’ that certain tools belong to the particular subcontractor.

Given that a PPSR registration can be lodged by anyone, for anything against anybody so long as they have a credit card with an available balance of at least $6.80 and that there’s no checking or verification that its details bear any relationship to reality, there is absolutely no way that a liquidator is going to accept a PPSR registration along these lines at face value.

Liquidators spend large amounts of their time picking holes in, and generally finding fault in, PPSR registrations and will not be convinced by a registration that, effectively, says that “a box of spanners and a hammer with a red handle” are owned by a particular tradie.  Even being able to identify tools by serial numbers won’t be treated as any evidence of ownership.

If proving ownership is the issue, it will be far more effective simply to have your name inscribed/labelled on the tool than to have it registered on the PPSR.

In short, while suppliers selling goods on Retention of Title terms, and hire companies, hiring goods on a long-term basis would be foolish not to register their interests on the PPSR, it would be foolish for subcontractors and tradies, looking to protect their tools, to think that a PPSR registration would be of any help.

PPSR Registration vs Credit Insurance

I’m finding myself increasingly being asked to address questions along the lines of: 

If I have a PMSI registered on the PPSR do I really need to worry about credit insurance?; 

and, its alternative:

If I have credit insurance in place, do I really need to worry about registering my PMSI?

In return for payment of premium, credit insurance can provide trade credit suppliers with protection of around 90% of any loss suffered should their buyer go insolvent, or otherwise default on their payment obligations.

However, if you have sold your goods subject to a Retention of Title clause and your customer collapses before they can make payment, a timely $6.00 registration on the PPSR of that ROT will ensure the return of your goods (or their cash equivalent).  

If this is the case, do you really need to pay substantially more in credit insurance premiums for bad debt protection?

Unfortunately, registration of a ROT will NOT ensure the return of your goods (or their cash equivalent).  Registration might result in the return of goods, and registration certainly won’t hurt recovery prospects, but it isn’t a miracle cure.  Unpaid for goods may have been on-sold, consumed or ‘mislaid’ by the time a liquidator is appointed and what goods can be recovered may no longer be worth their original invoice value, either through use, damage, or merely by the passage of time.

Because the PPSA focuses on property being used as collateral in a security interest, its effectiveness is wholly dependent upon the continued presence of that particular property and the value of the property continuing to be sufficient to cover the value of the outstanding debt for which it acts as security.

Credit insurance, however, focuses on what is actually owed, what has been invoiced and what remains outstanding.  It doesn’t concern itself with any fluctuating value relating to the goods supplied nor with their continued presence post-delivery, only with what is owed under the invoices issued.

If someone goes bust owing you money, a credit insurance policy will, invariably, pay you the lion’s share of your loss, regardless of what happened to the goods you supplied.
Does this mean that credit insurance is the miracle cure and PPSR registration of ROT/PMSI rights is not necessary?

Well… 

While I’m an enthusiastic advocate for trade credit insurance, it is nonsense to suggest that other risk mitigation strategies should be ignored merely because there’s an insurance policy in place.  You wouldn’t start leaving your house unlocked when you left to go to the shops just because you have a home & contents insurance policy, nor would you be casual with your car’s security because it’s insured against theft.  

Not only do credit insurers require that the policyholder (the ‘supplier’ in our context) maintain a financial interest in the underlying transaction (the supplier will usually have to bear at least 10% of any loss), they also set their premium rates based (in large part) on the supplier’s past history of bad debts and the claims they’ve already had to pay.  

Just as a car insurer will take note of whether the insured vehicle is garaged overnight or parked on the street, so a credit insurer will look at the extent to which suppliers mitigate the potential for losses by including security rights in their trading terms and perfecting those rights by registration on the PPSR.

Who would a credit insurer be happier with as a policyholder? a supplier who suffers a loss but is able to recover half its value by exercising their PPSR registered security rights, or a supplier who is unable to offset any of their loss because they weren’t prepared to spend $6.00 on a PPSR registration?  

While both suppliers will get their claims paid, one will likely find their premium rates ‘adjusted’ far more than the other.

So while a credit insurance policy is more likely to keep your business afloat when beset by bad debts, a PPSR registration will likely help keep the cost of that insurance policy as low as possible.

PPSR Statistics & the Rise of 'Other Goods'

The Australian Financial Security Authority (AFSA) – perhaps better known as the people that run the PPSR – released, earlier this month, PPSR related statistics for the July-September quarter.

I’ve included a link here.

As at the end of September, there had been a total of 19,265,693 registrations, of which marginally under half were still current.

The largest single collateral class overall was, unsurprisingly, Motor Vehicles, accounting for 49% of all current registrations (although if you take Consumer related transactions out of the picture this drops to 34%).

However, what caught my eye this time around was the extent to which Other Goods registrations have come to dominate over the last 5 years.

5 years ago, All Present & After-Acquired Property registrations (AllPAAPs) accounted for a little over 2 million registrations while Other Goods registrations made up less than a million (944k).

This shouldn’t be too much of a surprise; AllPAAPs are primarily the preserve of banks and financiers who would have been all over the PPSR upon its introduction, ensuring their security interests were properly protected from the outset.  Other Goods registrations, on the other hand, are very much the tool of the trade credit supplier with Retention of Title rights and, as we know, this disparate group is not always the most organised or receptive when it comes to ‘Government Red Tape’.

However, things have changed considerably over the last 5 years with AllPAAP registrations remaining pretty static (even declining slightly) and Other Goods registrations steaming ahead as trade credit suppliers get the message that PPSR registration represents one bit of Red Tape they need to adopt if they are to protect their rights over their unpaid goods and give themselves a better chance of fending off liquidators’ preference claim clawbacks.

With over 2.6 million current registrations, Other Goods now represents the largest collateral class for non-consumer registrations.

There is every indication that this trend will continue as trade credit suppliers come to terms with the fact that the PPSR isn’t going anywhere and failing to embrace it will only contribute to them suffering larger losses than they need to.