How The PPSA helps Fuel Distributors Protect Their Securities

Fuel Distributor

Fuel distribution in Australia is a tough, competitive business with high costs, long distances and typically low margins.  

We have many national and state-based fuel distributors as clients, several of whom had previously suffered significantly from the insolvency of their customers. Ignoring the Personal Property Securities Act (PPSA) may have been a costly experience for them, but it’s a valuable lesson for others.

The insolvency of a customer presents several risks to fuel distributors:

  • The loss of outstanding monies
  • The loss of storage, pumping and other equipment loaned or rented to the customer
  • The loss of fuel supplied on consignment
  • The potential for the ‘clawback’ of unfair preference claims. 

So, how can you avoid suffering a similar costly mistake?

Step one is to ensure your terms of trade with your customer incorporates security of payment provisions as well as security over the equipment you supply your customer. 

Step two is to correctly register your security on the Personal Property Securities Register (PPSR). 

To help explain how the PPSA can benefit your business, here are some anonymous (but real) case studies. 

Fuel Company

Fuel Storage Tanks

Fuel Company is a typical regional distributor of bulk fuels, and for some customers they also rent storage tanks and dispensing equipment.  

When their customer B Transport Co collapsed, Fuel Company was owed $425k. They were also renting storage and pumping equipment to B Transport.  

Fuel Company’s terms of trade included plenty of security: 

  • Retention of title over the fuel supplied to B Transport
  • A charge over B Transport’s assets
  • Security over the rented equipment.

Their PPS registration of their retention of title rights over the fuel had been performed correctly and they quickly recovered the value of their fuel on hand ($190k) from B Transport’s voluntary administrator.  

Unfortunately, there was no PPS registration in respect of B Transport’s security over their assets or the rented equipment.  B Transport’s failure to register their interest in the storage tanks and pumping equipment meant the administrator took all their equipment, valued at over $150k.

To make matters even worse, the pumping equipment didn’t belong to B Transport. They were renting it from another supplier.  That makes no difference to the administrator who kept the equipment. B Transport then had to reimburse the value of the pumps ($30k) to their owner. 

With the appropriate registration of their security on the PPSR the result would have much more favourable for B Transport:

  • They would have recovered their storage equipment – $150k+
  • They would have recovered the rented pumping equipment – $30k
  • They would have a high priority secured claim over the assets of B Transport for the shortfall of $215k they suffered ($425k less the amount recovered $190k).

D Fuel Supplies

Fuel Tanker

D Fuel Supplies operates a very similar fuel distribution business across Australia.  They too had various security clauses in their terms of trade but were not consistently and completely registering their security on the PPS Register. 

When Voluntary Administrators were appointed to their client G Mining, D Fuels:

  • Was owed $200k, and
  • Had storage tanks on G Mining’s site worth over $100k.

D Fuels had registered their security interest in their tanks and were able to recover them but they had neglected to register their retention of title rights in their fuel and were unable to recover any value for the fuel on hand. 

As they had not registered their security in the fuel they supplied to G Mining, their security was lost and D Fuels had to join the queue of unsecured creditors (knowing very likely they would get no return). 

To make matters worse, the liquidators formed the view D Fuel Supplies had received unfair preference payments from G Mining during the 6 months leading up to its insolvency. The liquidators were now claiming almost $1m in preference payments. 

One point highlighted by the liquidators in their action was D Fuel’s failure to register its security.  It turned out to be an expensive experience for D Fuel Supplies. 

Both these cases prove just how important it is to register your security correctly on the PPSR.  Your terms of trade create your security, your customer agrees to your security when they sign your terms, but it’s up to you to ensure you correctly register it. 

To see if you’re correctly registering your security on the PPSR, take advantage of our Assurance Review ‘health check’.

If you’re not complying with the PPSA, our Impact Assessment will identify the benefits and the costs of compliance – that way you can make an informed decision on whether compliance is right for your business. 

To book an Introductory Service contact us today.

Remember, if it involves the PPSA, involve us.

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Trying to recover your debt and/or equipment after your client becomes insolvent is too late. Tighten your security to protect future payments and/or hired equipment.

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