PPSA and terms of trade: do suppliers need to register a security interest on the PPSR for each supply?

23 October 2012 Topics: Personal Property Securities

Businesses that supply goods to other entities should revisit their policies about registration on the Personal Properties Securities Register (PPSR) or risk losing their claims to goods if their customers become insolvent.

Many businesses supply goods on terms and conditions that provide for future orders of goods to be made by purchase order and include retention of title clauses. Some liquidators and receivers are taking the view that if businesses supply under these terms:

  •  the standard terms, together with each purchase order, form a separate contract on the date of the purchase order or the date the purchase order is accepted by the supplier
  •  each contract creates a new security interest
  •  therefore goods supplied after 30 January 2012 are not covered by the transitional provisions
  • businesses need to register their interests for each supply in order to protect their interests in those goods
  • if businesses do not register for each supply after 30 January 2012, they are unsecured creditors for those supplies.

The liquidator or receiver then typically offers to settle the supplier’s claim for some percentage of the value of the unpaid goods supplied after 30 January 2012.

This is a technical argument that appears to be inconsistent with the legislation’s objects and would be cumbersome if in fact it were correct, but until there is some case law, the matter is uncertain. This uncertainty means that suppliers face an undesirable situation of having to either litigate to protect their claims or settle them on a commercial basis.

Until there is case law that clarifies the situation, businesses should review their supply terms and reconsider their registration strategies, particularly for orders of significant value.

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