What is a sale on a 'retention of title' basis?
It is a conditional sale. The supplier remains the owner of the goods being sold until the goods are paid for in full by the purchaser. This transaction is now deemed to be a secured transaction.
Personal Property Securities Act 2009 (Cth) (PPSA)
The PPSA has had a profound impact on the rights of suppliers that sell goods on a retention of title basis (ROT Supplier).
Under the PPSA, a ROT Supplier is now a secured creditor of a purchaser and must comply with the requirements under the PPSA in order to protect their interest in goods sold until they have been paid in full by the purchaser. Generally, these requirements include:
- a written trading terms/supply agreement to govern the retention of title arrangement, that;
- accurately describes the goods the subject of the retention of title arrangement; and
- is signed by the purchaser; and
- the ROT Supplier must register a financing statement on the Personal Property Securities Register in relation to the interest of the ROT Supplier in the goods being sold. This financing statement must be registered within the statutory time frame (for inventory – before the purchaser obtains possession of the goods) in order for the ROT Supplier to have the maximum protection under the PPSA.
If a ROT Supplier complies with the requirements under the PPSA, the ROT Supplier will normally:
- have an enforceable security interest in the goods sold to the purchaser;
- be a secured creditor of the purchaser; and
- hold a special priority for its security interest – which will take priority over all other (including earlier) security interests in the goods.
Consequences of Non-Compliance
If a ROT Supplier fails to comply with the requirements under the PPSA, the ROT Supplier could:
- lose its interest in the goods being sold, notwithstanding that the ROT Supplier is the owner of the goods – this is a radical departure from the long established legal principles which protect an owner's interest in property;
- have its rights subordinated to another secured creditor; and
- become an unsecured creditor of the purchaser – this is an extremely bad outcome for the ROT Supplier given the low prospects of any significant return to unsecured creditors of an insolvent purchaser.
It is critical that a ROT Supplier fully understands its rights under the PPSA.
Strict compliance with the requirements under the PPSA is essential in order for a ROT Supplier to protect its statutory rights. Failure to do so will almost certainly result in financial loss for a ROT Supplier, particularly in the event of payment default or insolvency of a purchaser.