Using The PPSA To Recover Machinery & Parts Supplies

Machinery & Parts

Of the many hundreds of clients we’ve worked with, several are suppliers of machinery and parts.

If that’s the industry you operate in, you may be aware the potential for customer insolvency is quite high. Machinery and equipment suppliers have often been caught short waiting on a payment for goods only to get the news that their customer has become insolvent.  

The risks posed by the insolvency of a customer can be mitigated, but never eliminated. There are two essential steps you need to take: 

First, ensure your terms of trade with your customer incorporates security for payment provisions.  

Secondly, you must correctly register your security on the Personal Property Securities Register (PPSR). 

Most supplier’s terms and conditions of trade already include a very common retention of title clause by which they retain legal title to the machinery, equipment and parts they sell until those goods have been paid for.  

The introduction of the Personal Property Securities Act (PPSA) in 2009, gave the retention of title rights legislative backing and strengthened it significantly. To get the full benefit, suppliers need to comply with the PPSA. 

To help you understand how beneficial the PPSA is for machinery and equipment suppliers, here are some anonymous (but real) case studies. 

Oz Parts

Machinery Parts

Oz Parts is a very successful family run businesses, specialising in supplying truck and trailer parts for the transport industry.  

When their customer, W Transport Services collapsed into voluntary administration, Oz Parts found themselves with an outstanding debt of $1.3m.  

Their retention of title provided Oz Parts with security over their truck and trailer products.  

Oz Parts had correctly registered their security on the PPSR and accordingly were able to enforce it on the collapse of W Transport Services. The administrators of the collapsed company had intended to carry on trading whilst they attempted to sell it. Oz Parts now had significant leverage in their negotiations with the administrators for the payment of their outstanding debt. 

Under the PPSA, Oz Parts has the right to recover their machinery and parts, even those that have been affixed to W Transport’s trucks and trailers. Also, the PPSA provides Oz Parts with the highest priority secured claim over their parts (even higher priority than the banks). 

Following negotiations with the administrators, Oz Parts received payment of $1.27m of their claim. Their $6 PPS registration was certainly money well spent.  

Had they not registered their security they would have ranked as an unsecured creditor of W Transport Services and most likely received no return. 

Another of our clients supplying parts to W Transport recovered 100% of their $1.6m debt as they too had registered their retention of title rights.  

Mining Machinery

Mining Machinery

In stark contrast, the next case shows what can happen if you don’t comply with the PPSA.

Mining Machinery supplies engines and parts for large scale mining machinery. Part of their service includes the provision of exchange engines meaning they provide an exchange engine whilst they repair the client’s broken-down engine. 

Mining Machinery had complied with the PPSA for some previous clients but not all. When a large civil engineering customer collapsed, Mining Machinery discovered they hadn’t registered their security against this customer and as a result, lost their engine worth $800k.  

This massive loss prompted Mining Machinery to adopt a policy of registering their security against all customers (keeping in mind one $6 registration covers 7 years of ongoing transactions with a customer). 

The following year, the collapse of a national engineering business saw Mining Machinery recover $1.2m in equipment and parts. 

The only difference in these two insolvencies was Mining’s compliance with the PPSA. Not a bad return on a $6 investment. 

If you have an unregistered security, it can be lost instantly when your customer becomes insolvent. A simple $6 registration will preserve your security. 

At PPSAdvisory, we provide an Assurance Review – essentially a quick ‘health check’ to ensure you’re correctly registering your security on the PPSR. 

If you’re not complying with the PPSA, our Impact Assessment will identify the benefits as well as the costs of compliance so you can make an informed decision. 

To book an Introductory Service, contact our team.

Remember, if it involves the PPSA, involve us. 

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