If you sell goods on credit and use a Retention of Title Clause (“RoT”) to protect your interests you need to know that, if your RoT hasn’t been reviewed by a lawyer this year, it is probably useless.
On 30 January 2012 the Personal Property Securities Act (“PPSA”) came into force. This piece of legislation changed the way we protect ourselves from non-paying debtors. The Act gives creditors far greater rights than ever before which is obviously a good thing. But this extra protection has come at a cost.
Under the new legislation we, as creditors, must ask the debtor for their consent to create an interest in our own assets. Obviously, the debtor can refuse – but then, we don’t have to sell to them, do we? In addition to seeking the consent of our customer, our clauses should also mirror the language used in the PPSA, so “goods” are now “collateral”, the “debtor” is no longer a “customer”, instead they are a “grantor”, and under the new rules our RoT is now a “security interest”.
We must also ensure that our “security interest” is “perfected”. The easiest way to do this is to record it on the PPS Register – an online index set up by the government (www.ppsr.gov.au). Of course this comes at a cost – from $7.40 for a security interest of less than 7 years. If your security interest is not perfected it will fail when pitted against a registered security interest such as a charge or another RoT.
So the downside is pretty depressing. What about the up-side?
Under the old law relating to RoT, we had to be able to clearly identify the subject goods as being supplied on an unpaid invoice. Whilst this was largely unknown by many who relied on RoT, it usually meant that the goods needed to have a unique identifying number such as a serial number. However, under the PPSA a properly worded security interest will attach to all goods supplied by you to the grantor.
In addition, if the goods were attached to other items or mixed with other products so as to lose their original identity (think of flour being mixed with eggs, milk and sugar to become a cake) then the RoT would fail. But the PPSA fixes this problem also. A creditor can now trace their security interest into the proceeds of sale of goods that have been “accessioned” or co-mingled”.
Is that sounding better?
OK, so this is what you should do.
Have a good lawyer check the wording of your clause and also your Terms and Conditions of Trade.
Contact your customers and ask them to acknowledge your new terms of trade and consent to the registration of a security interest.
Ensure that all of the contact information on your customers is accurate and complete.
Register your security interest on the PPSR.
Work out why it has taken so long for you to learn about these important legislative changes.
Chin up and get some professional advice!