Australia: PPSA: a potential hangover for retailers in the liquor industry in Australia

The Personal Property Securities Act 2009 (Cth) (PPSA) came into force on 30 January 2012. The PPSA overturns fundamental property law concepts including the long held concept of title to property. A complex set of rules now govern the taking and enforceability of security interests.

The PPSA is having a huge impact on businesses throughout Australia. However, many businesses are still unaware of the PPSA. A failure to understand and comply with the PPSA in the context of risk could result in a business losing a major asset or revenue stream.

This guide briefly highlights, by way of a question and answer scenario, some of the ways in which the PPSA regime may affect retailers in the liquor industry in Australia.

I acquire stock on 30 day credit terms. Does the PPSA apply?

Yes. Your supplier is at risk in the event that you become insolvent prior to payment in full of the amounts owing under any such credit arrangement. Prior to the PPSA, in the event of insolvency, the supplier was entitled to enter your premises and retake the goods supplied to the extent they were still there. Now, unless your supplier has a registered PPSA security interest over the goods, your creditors (assuming you are a company) may have a better claim to those goods. Any such security interest is called a purchase money security interest or PMSI.

Generally, your supplier has 20 business days from the entry into a sale arrangement to register a security interest. However, if the goods are sold as inventory then the security interest must be registered prior to the goods leaving your premises. Either way, your supplier's terms of trade and credit terms will need to be PPSA compliant for a registration to be effective.

I have obtained a loan to acquire vehicles for use in my business. Does the PPSA apply?

Yes. A lender will be entitled to register a security interest over your business. You should carefully check the terms of any such loan agreement/facility arrangement. In particular, the grant of a security interest in priority to the lender's security interest may put you in breach. This may be an issue where, for example, you grant a PMSI to a supplier. Further, if you acquired the vehicle with the loan funds, then the lender may take a security interest over the vehicle. If you then lease that vehicle, there are other issues that you will need to address.

I hire plant and equipment for use in my business from a third party. Does the PPSA apply?

Possibly. A lease of a serial numbered vehicle for more than 90 days or a lease of non-serial numbered goods for more than a year may be what is called a PPS lease. A PPS lease may be registered as a security interest. The owner may seek to register a security interest over the plant and equipment.

I on-hire plant and equipment to a third party. Does the PPSA apply?

Possibly. As above, a lease of a serial numbered vehicle for more than 90 days or a lease of non-serial numbered goods for more than a year may be a PPS lease. A PPS lease should be registered by the lessor as a security interest. If you have a finance facility in place, it will most likely cover all your assets. If you on-hire an asset but fail to register a security interest over the asset, this may be a breach of one or more financing covenants in your financing documents. Also, if you fail to register and your customer becomes insolvent, your plant and equipment may not be recoverable. In such an event, as well as losing your unsecured asset you may be exposed to your lender/lessor under any hire purchase or financing arrangement that you have with the lender with regard to the lost asset.

I am looking to sell my business. Would the PPSA apply?

Possibly. If you sell your business and part, or all, of the purchase price is deferred, you may be able to structure the sale and register a security interest to secure payment. In any event, this is a significant risk and any such sale and purchase should be carefully documented to reduce your exposure.

What to do next

Check all of your existing supply, asset and lease arrangements for potential PPSA issues. If you need advice or assistance with registering a security interest, Rockwell Olivier can help.

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.