For a long time accountants and business advisors have recommended the use of an ‘asset protection structure’ between related entities within the same group.
The whole purpose of these structures is to protect Asset Co’s assets from the insolvency of Trading Co.
Most often this involves one entity owning the property, plant and equipment whilst another related entity trades with it. The thought being if the trading entity was forced into insolvency the property owning entity could simply repossess its property.
The PPSA now undermines the effectiveness of this structure. If your business uses this type of structure, you really should comply with the PPSA, ensuring your asset protection structure actually does what it’s supposed to – protect your assets.
Example
- Asset Co owns a number of prime movers and trailers worth over $1m
- A related entity, Trading Co is a transport company
- Asset Co has leased all of its equipment to Trading Co
- Trading Co collapses and Voluntary Administrators step in
- The Administrators seize and keep all of Asset Co’s equipment in the possession of Trading Co because Asset Co had not complied with the PPSA
- To avoid this situation Asset Co simply needed to have a PPS compliant lease, comply with the PPSA and could have protected its equipment for $6.80(Goverment charge).
If you’d like further information contact PPSAdvisory by clicking here.