Get registered or prepare to get burned

Print Friendly, PDF & Email

If you are in the business of supplying or providing goods (or property of any kind) either by way of lease, credit, consignment or under a retention of title clause (also known as a “Romalpa” Clause), you need to ensure that your interest in these goods is registered on the Personal Property Securities Register (PPSR) as a security interest.

It does not matter what the goods are or whether you have reserved your rights or ownership of them in any contract you have with the customer – if you have not registered your interest in the goods on the PPSR then you are liable to find that a third party creditor of your customer has enforceable rights in those goods in priority to your own interest even though you may actually still own the goods. This creditor may be the customer’s bank who holds a general security interest over all of the customer’s present and after acquired property and unless you register your own interest (called a financing statement on the PPSR) then their rights will trump yours regardless of the contractual arrangement between you and the customer. In any instance where a supplier is providing new value in respect of specific goods or property then as long as that interest in those goods is registered on the PPSR it will normally rank ahead of any general security interest that is registered over all of the customer’s property and assets but only in respect of the particular goods supplied.

The moral of the story is that as a supplier you cannot rely simply on the terms of any contract between you and the customer to enforce your legal rights in any goods supplied. The terms of the contract will be enforceable against the customer but not against a third party that has a prior interest registered on the PPSR over the customer’s property and assets. The registration of security interests on the PPSR is a fairly simple process and only costs a few dollars and is simple way of helping to reduce your risk and exposure to defaulting customers.

Our thanks to Jared Cains for writing this article