Why Comply With The PPSA? – Retention of Title

Packing goods on truck

People love to hate the PPSA, but I’m not sure why?  It’s a fantastic piece of legislation that helps protect many businesses from the insolvency of their customers. If you’re a business that sells goods/equipment/materials on credit terms you have good reason to comply with the PPSA.

To be honest, compliance with the PPSA is the most basic of risk management steps for any business selling anything on credit. We have clients selling asphalt, fertiliser, spare parts, coffee, building materials, air-conditioning, livestock feed, agricultural chemicals, motor vehicles – just about everything you can think of. 

How does the PPSA work?

The PPSA gives legislative backing to your right to retain title to the goods you supply to a customer until the customer pays you for those goods.  This is fantastic news for anyone supplying goods on credit terms.  

It means if your customer becomes insolvent, you can recover any of your goods you can identify, not yet paid for and still in their possession (even where they’ve fixed your goods to other goods or mixed them).  In fact, your claim comes first, before your customer’s bank or any other creditor.

Further, if your customer has on-sold your goods to their customer and their customer is yet to pay them, you can now claim directly from them.

Historically, Insolvency Practitioners have paid little regard to retention of title.  This has all changed with the introduction of the PPSA.  You are a Secured Creditor and the Insolvency Practitioner must deal with you as such. 

And remember, your customer doesn’t need to become insolvent for your rights to be exercised.  If your customer defaults in their obligations to you (usually to pay you on time), you can exercise your powers of recovery under the PPSA.  This can greatly assist in debtor recovery before your customer collapses. 

How the PPSA helped save a business

Steel bridge company

To understand how the PPSA could save your business, let’s look at a real-life example of a client we helped. For privacy reasons, we’ve changed the businesses names.

Steel Co supplies Build Co with fabricated steel.  Build Co uses the steel in the construction of bridges, usually for the Department of Roads.  Build Co’s sudden collapse caught Steel Co by surprise and at a time when it was owed $280k by Build Co. 

So how does the PPSA help protect Steel Co from Build Co’s insolvency?  Well, Steel Co now has the highest and best claim over:

  • The $150k of steel still held by Build Co and yet to be installed in the bridge
  • The $15k of steel used by the Administrators after their appointment to Build Co 
  • The $35k owing by the Department of Roads to Build Co in respect of the steel used in the bridge.

Steel Co recovers $200k of its $280k debt (over 70 cents in the dollar) and the only reason it could do so was its compliance with the PPSA.  Steel Co had, in 2015, performed a PPS registration over Build Co. 

The ‘maths’ is pretty straightforward – comply with the PPSA and recover $200k, ignore the PPSA and lose it all.  

The Liquidator’s report to creditors identified only one PPSA related payment had been made and it was to our client.  What are the other ‘hundred plus’ suppliers thinking when they ignore the benefits of the PPSA?

How much will a PPS registration cost?

Filling in paperwork

The PPSA can be the difference between keeping your business alive and losing it.  One client had so much money owing to them from an insolvent client (more than $1m) it could have meant the end of their business.  But their $6 PPS registration meant the spare parts they had supplied the insolvent transport company remained theirs until they were paid for them.  

The Administrators would have had a hard time trading on the transport business if our client had removed their unpaid parts from the equipment (a right they have under the PPSA).  Our client negotiated with the Administrators and received a return of 97 cents in the dollar. 

Another one of our clients, caught out by the same transport company’s collapse, recovered all of their $1.7m debt for parts.  And why, because they had complied with the PPSA.  

So, the difference between saving a business and losing it came down to a $6 PPS registration.  Suppliers who were not complying with the PPSA lost everything they were owed.

The PPSA has been a ‘godsend’ for suppliers selling ‘stuff’ on credit terms.  To ignore the many benefits of the PPSA is simply crazy. 

If you’re a business that sells goods or materials on credit, contact PPSAdvisory today and see if the PPSA is for you. 

Any advice provided in this article is general in nature only. PPSAdvisory advises on all matters to do with the PPSA and are not lawyers or accountants. This is not legal or accounting advice and you should obtain confirming legal and accounting advice before acting.

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