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Employers should be aware that authorising employees to enter
into terms of trade that contain retention of title or credit
terms, or that relate to a lease or consignment of personal
property (Supply Contracts), will entitle the
supplier of those goods to register a Personal Property
Securities Act 2009 (Cth) (PPSA) security
interest over the employer company.
How is that possible?
The PPSA is one of the most significant reforms to Australian
commercial law in decades. It applies to commercial transactions
involving virtually all types of property (except land). As a
result, it has a significant impact on numerous commercial
relationships, documents and transactions, including employment
contracts.
The issue arises in the employment context, because the PPSA
extends the concept of a "security interest" to include
(amongst other things):
Retention of title arrangements (for example, equipment
supplied on trade account terms);
Equipment leases; and
Bailment or consignment arrangements.
Key employees may be given authority to enter into Supply
Contracts as part of their role. However, employers and employees
should be aware that entering into Supply Contracts will, when
signed by the employee, entitle the supplier to register a security
interest over the employer company on the Personal Property
Securities Register (PPSR).
How does the PPSA impact me?
Employers should be aware that allowing employees to enter into
Supply Contracts may have the following unintended
consequences:
a breach of the employer's banking covenants that prohibit
the employer from encumbering the employer's assets without the
bank's consent; and
a large number of security interests being registered over the
employer company on the PPSR that may impact on the employer's
ability to obtain funding/credit or enter into other Supply
Contracts.
What should you do?
Although an employer cannot prevent a supplier from registering
a security interest on the PPSR, there are a number of steps an
employer can take to mitigate the risks identified above:
educate employees of the risks associated with signing Supply
Contracts;
implement an internal policy requiring that Supply Contracts be
signed only by authorised senior personnel; and
undertake an annual review of the PPSR security interests
registered over the employer to ensure all of those interests are
current and identify expired interests that should be removed from
the PPSR.
How we can help
DibbsBarker can assist in drafting and implementing internal
PPSA policies, undertaking annual PPSR reviews and conducting
seminars about the PPSA regime.
We also offer general PPSA advice and advice on specific issues
of concern.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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