The transition period for the Personal Property Securities Register (PPSR) concludes on the 31st January 2014. In less than two months’ time, the legislation will become fully effective in Australia.
Some recent newspaper articles indicate that less than 5% of Australian businesses have registered their assets or transactions under the PPSR. This indicates that not enough attention has been given to this very important legislation, which has been described as the most significant change in commercial law in Australia over the past 40 years.
The challenge for accountants is to determine whether your SME clients are appropriately prepared.
Recent media stories have highlighted many SMEs, particularly in the construction industry, do not understand their obligations under the Personal Property Securities Legislation.
Tradespeople in particular have encountered major legal obstacles in removing scaffolding or other equipment from construction sites, when builders have failed and liquidators have been appointed. This is the result when tradespeople have not appropriately registered a Personal Property Securities Lease (PPS Lease) with the PPSR. This can be very concerning and costly for the tradespeople involved.
Other businesses are not aware that the Romalpa Clauses, which have been operating for many years, are no longer sufficient to enforce a right to remove goods that have not been paid for, unless the Romalpa Clause is appropriately worded, in accordance with the PPSR requirements.
Businesses need to register their security interest in the PPSR so they are able to claim ownership of the property, in the event that the customer, or the organisation with possession of their plant and equipment, is unable to pay up, or goes into liquidation.
What should a business do? It is important that all businesses are using current terms of trade that have been prepared by their solicitors in the last two years.
All SMEs need a Retention of Title Clause, also known as the Romalpa Clause, included in their sales documentation.
Our suggestion to you, as accountants, is to encourage your clients to have a discussion with their solicitors to have these documents prepared.
Your clients will then need to ensure their terms of trade are submitted to their customer, and the terms of trade are signed off by the customer. If the client believes a business failure by their customer could cause them acute financial embarrassment, or if your clients believe they could be in the awkward position of having to reclaim their equipment, they need to register a ‘financing charge’ on the PPSR.
All of this needs to be done before their goods are supplied to the customer.
What part of commercial life applies to the PPSR?
The simple answer is – a whole lot does. Things such as:
- goods supplied on credit with Retention of Title Clauses;
- consignment sales;
- anything related to motor vehicles, boats, trailers or aircraft;
- any hire or lease arrangements;
- goods stored in someone else’s possession or site; and
- the legislation also affects the farming industry, relative to crops, livestock, cattle on agistment and supply of seeds and fertilisers for farmers.
Possession is now definitely ‘9/10 of the law’.
There have been some recent court cases in New Zealand (which introduced this legislation in 2002) and Australia. One incident involved ‘leased portable buildings’, which were not registered under the PPSR by the owner. As a result, the court held that the mortgagor had the right to sell the portable buildings to recoup their losses, even though the mortgagor was not the legal owner of the portable buildings.
Another case involved a stallion leased to a farming business. The farming business went into financial difficulties, and a liquidator was appointed. The court supported the concept of the liquidator being able to sell the horse to recover funds for the secured creditor, even though the horse was not owned by the farming business.
These cases highlight the necessity for SMEs to be advised of their rights and obligations under this legislation.
As their accountant and trusted advisors, it is important to contact your SME clients and advise them to have a discussion with their solicitors, and have appropriate documentations prepared. It is also important that you review their systems to make sure your clients are implementing their solicitors’ advice, and periodically review their systems to ensure the accuracy of their ongoing processes, in compliance with the legislation.
ESS BIZTOOLS has a special offer for December with a FREE report ‘PPSR Summary Notes’, to assist you in advising clients on Personal Property Securities Register. If you wish to obtain your free copy, please send an email to peter@essbiztools.com.au.
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