The End of Temporary Protection Under The PPSA – Farewell to Rot Clauses

GRANT HACKLETON, Legal Practitioner Director and ASHLEY DILGES, Solicitor Manager for Jones King Lawyers provide a report on the end of temporary protection under the PPSA.

THE Personal Properties Securities Act 2009 (Cth) (“PPSA”) governs the taking of, registration and enforcement of security over such things as leases, hire purchase agreements, consignments, rental agreements and, importantly, retention of title arrangements.

The period of temporary protection for security interests under the PPSA – the built-in mechanism for protecting pre-PPSA security holders – came to an end on 30 January 2014.

If you supply goods on credit or intend to rely on a rot clause and have not yet received legal advice with respect to the effect of the PPSA, there are important changes that you should know about.

For suppliers of goods on credit under retention of title arrangements, ownership of the goods under the PPSA is no longer relevant – it is registration of the goods that is important, and the timing of that registration.

A retention of title clause is no longer sufficient to secure or protect a creditor’s interest in goods once they are supplied to a customer.

In the absence of the creditor’s interest in their goods being properly created and registered onto the personal properties securities register (“PPSr”), a supplier of goods is at risk of those goods forming part of the customer’s assets in an insolvency event (the bankruptcy, liquidation or administration of the customer).

This means that the creditor is at risk of remaining unpaid and without the ability to reclaim its goods supplied on credit – a double blow. In those circumstances, a trustee, liquidator or administrator will then deal with those goods as if they formed part of the customer’s assets, and disregard the creditor/supplier’s ownership of the goods.

Creditors who supply goods on credit should ensure that their credit documentation, including their terms and conditions, are such thatthey create a security agreement between it and their customers, sufficient to give rise to a security interest being correctly registered onto the PPSr.

They should then ensure that they register that interest on the PPSr as soon as possible, to avoid a competing security interest gaining priority. It is only those security interests that are properly created and registered onto the PPSr that will protect a creditor should an insolvency event occur.

Proper registration would allow the creditor to seize its goods, recoup its losses and minimise the impact of the insolvency event on the creditor’s business. Improper registration, or no registration at all, would not.

Jones King Lawyers Pty Ltd can assist your business in amending its credit documentation and in respect to all aspects of the PPSA, if required.

“That credit documentation was developed between CMPA and Jones King Lawyers with a workshop held for CMPA members on this issue last year in September.”

The information contained in this article is of a general nature, and not intended to constitute legal advice, or to contain a full analysis of the law. You must take specific legal advice on any particular matter which concerns you.

Our contact details are:
JONES KING LAWYERS PTY LTD
Level 7, 525 Flinders Street, Melbourne, Victoria, 3000
Phone: (03) 9628 2801
Email: melbourne.mail@jonesking.com.au

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