If you sell goods on credit and hope to have protection through your current Terms of Trade retention of title provisions…you can forget it if you don’t register under the new PPS system from October…
Clinch Long Letherbarrow BizLaw BulletinIf your business provides goods or services on a title retention basis, you may no longer be able to rely on your title to protect your interest against third parties.
Retention of Title arrangements in a contract are an arrangement where a person who agrees to supply goods or services remains the owner of the goods until payment of the price, or some other specific event, at which point the title to the goods or services is taken to have passed. Suppliers commonly protect themselves against non payment by having Retention of Title clauses in their terms of trade.
From 31 October this year, Retention of Title arrangements will become a registrable security interest under the Personal Property Securities Act and they must be registered in the Personal Property Securities Register to be legally enforceable against third parties.
Without registration, the buyer of the goods is treated for PPS purposes as if it were the owner of the goods and the supplier’s rights are reduced to those of an unsecured creditor.
In other words, suppliers who sell goods on Retention of Title terms without bothering to register will be at risk of losing ownership interest in the goods, and their claim in the goods may be ranked lower in priority than other creditors who have registered their security interests in the PPS Register.
Retention of title agreements can be registered as a purchase money security interest which is given “super priority” over general registered security interests given by the purchaser. For example, a supplier which has a registered purchase money security interest has priority over a previously registered security interest, such as a company charge.
In preparation for the commencement of the PPS Register, businesses should review their terms of trade and Retention of Title arrangements to determine what security interests should be registered and consider the implications if they choose not to register.
This may involve updating business documents and terms of trade to ensure that they comply with the PPS Act, and grant a right to register the Retention of Title arrangement on the PPS Register. Businesses also need to ensure that they update their policies and procedures to ensure they promptly register their interest on the PPS Register when it goes live in October 2011.