The Personal Property Securities Register (“PPSR”) is an essential tool for trading parties to secure debt and shield off any potential claims from Liquidators under the voidable transaction provisions of the Corporations Act 2001 (Cth), in the event a customer or trading partner goes into liquidation and owes you money.
Concerningly, we have noticed that many clients come to us with non-compliant trading terms, or any trading terms at all. On that basis, those parties are left exposed, have greater difficulties in enforcing their unpaid invoices or have found themselves on the receiving end of a substantial demand from Liquidators appointed over insolvent companies. This places these individuals and companies under extreme financial stress. This can be avoided by having in place effective and enforceable trading terms and conditions.
Trading terms and conditions must be registered on the PPSR in order to be enforceable against a Liquidator if your trading partner becomes insolvent.
Registering your trading terms in accordance with the legislation will give your company the status of a ‘secured’ creditor in the event a customer or trading partner goes into liquidation. In addition, registration will give your company priority over unsecured creditors and substantially increase your chances of recovering the debt owed to your company if there is a distribution to creditors of the insolvent company. Sometimes even more importantly, being a secured creditor will also protect your company from any potential claims by Liquidators to claw-back money paid to your company by a customer or trading partner in the months or years leading up to their insolvency. These claw-backs are known as preference payments.
It is particularly an important consideration for companies in the building and construction industry, not least because of the new legislation (Building Industry Fairness (Security of Payment) Act 2017) which came into force on 17 December 2018, but because the building and construction industry is consistently ranked as having one of the highest rates of insolvencies in Australia. It is not uncommon for building companies to be embroiled in litigation with Liquidators regarding voidable transactions and preference payments when a customer or trading partner goes into liquidation.
With the introduction of the new legislation, it is a timely reminder to ensure you have compliant trading terms (which need to be updated to conform with the new legislation) and to ensure that your registrations are lodged and are current.
In order to register your terms of trade or credit agreements on the PPSR, you will need to:
- Obtain legal advice regarding your company’s terms of trade or credit agreement to ensure the terms are PPSR-compliant and constitute a registerable ‘security agreement’ for the purposes of PPSR;
- Issue new terms of trade to all customers and trading partners to intentionally create a new security agreement; and
- Register your security interest within 20 business days of the terms being signed.
It is important to obtain legal advice regarding your terms of trade, as these terms form your ‘security agreement’ with your customer. Without this, it will be very difficult to enforce your rights as a secured creditor, and your registration on the PPSR may be void against a Liquidator. Only a valid registration on the PPSR will give your company an enforceable security interest over the goods and services your company has provided on payment terms to a customer.
Registering your company’s terms of trade on the PPSR might seem like a lot of hassle, but the benefits of registration make that worthwhile. The cost to ensure you have compliant terms and to register those terms is significantly less than the risk and exposure you may have to unpaid invoices or a claw-back claim for preference payments that may be made by a Liquidator.
If you are concerned that your terms are not up to date (particularly with the new legislation now in effect), or if you require trading terms to implement into your business, please contact us for an initial and obligation free discussion to see how we can assist and ensure that you are in the best position to recover your debts and protect your business from a preference claim by an insolvency practitioner.
At Rose Litigation Lawyers, we are proactive in ensuring that all of our clients are informed of the recent legislative changes that will impact upon the way in which they continue to trade and protect their commercial interests. Please contact our office to ensure that your terms are up to date or if you require any assistance with registration or enforcement of your unpaid invoices.