Suppliers must adjust by October ‘11 or lose it all…

October 2011 is due to be the turning point for suppliers of goods in Australia.

A retention of title clause has always been the cornerstone of a supplier’s protection for payment for supply of goods in Australia. It allows a supplier the right to claim ownership over any good delivered to a customer, until payment is received in full.

Retention of title clauses are commonplace in most standard terms and conditions of supply, and are invaluable protection for a supplier in the event of insolvency of a customer.  

In the history of Australian law, it has never been possible to register a retention of title interest in goods. Suppliers have never had the opportunity to announce to the world at large that “until I get paid, I still own these goods”.

That position is about to be turned on its head.  

The Personal Property Securities Act 2009 (Cth) (PPSA) and Personal Property Securities (Corporations & Other Amendments) Act 2010 (Cth) are due to commence October 2011.

Well advised suppliers will be prepared, and will recognise the monumental change that this legislation is about to have and the opportunities it presents. They will recognise how these changes have the potential to vastly improve their position – and what steps need to be taken to allow this to happen.  

Others will be caught unawares, and find themselves with outdated clauses with no real use and possibly, with no priority in respect of their interest in goods. The PPSA is a complicated piece of legislation. The concepts are new and will cause a fundamental change to how Australian law recognises ownership of goods and competing claims of various interests over those goods. This is particularly the case for secured creditors, who to-date rely on fixed and floating charges over business assets.  

The following are fundamental key points for a supplier to remember:  

  1. Retention of Title Clauses remain valid under the PPSA;  
  2. If dealt with correctly under the PPSA, a Retention of Title Clause supplier has the opportunity to afford itself a much higher level of protection than ever recognised before in Australian law;  
  3. If not dealt with correctly under PPSA, a Retention of Title Clause risks becoming a toothless tiger.  

What to do:  

The National Personal Property Securities Register is due to come online on 10 October 2011.  

  • On this date, it will become possible to register a security interest as a retention of title holder;  
  • Failure to register does not necessarily invalidate the clause, but it does mean that other interests can take priority ahead of it;  
  • All suppliers should carefully review their existing Retention of Title Clause in their Terms & Conditions of Supply to ensure their interests will be registrable;  
  • Suppliers must register their interest on the Personal Property Securities Register to preserve their priority. If the clause is drafted correctly, it has the potential to retain priority in goods that are mixed, co-mingled or fixed to make a new product, and potentially to proceeds of sale;  
  • The best protection for a supplier is to register the interest before the supply is made or, if supply is ongoing, as soon as the Register comes online.