How to successfully use PPSR to get paid

There has been considerable focus placed on registering on PPSR amongst trade credit suppliers since the advent of the Personal Property Securities Act 2009 and rightly so. Suppliers of goods, sold on credit terms subject to retention of title, benefit from greatly enhanced rights not available under the previous law. Despite a rush to register, not all suppliers understand their rights and many don’t know how to take advantage of their secured creditor status.

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Lynne Walton from Access Intell helps us better understand our rights to help us achieve an improved outcome.

Suppliers with suitable Terms and Conditions that register correctly on PPSR become ‘secured’ creditors. This means that you have a much better chance of being paid than a creditor that hasn’t register and is ‘unsecured’. By virtue of your elevated status, an Insolvency Practitioner must deal with your ‘secured’ claim in priority to all other creditors - they have a statutory obligation to do so. This should all be very simple but, of course, no one likes paying out if they don’t have to.

Below are some questions to ask yourself when an insolvency occurs and some real life examples of where intervention was needed to keep an Insolvency Practitioner accountable:-

1. Have your Terms and Conditions of Sale been accepted by your customer?

Section 20a of the PPSA (paraphrased) states that ‘the security agreement must be in writing and signed by the grantor’. This was the basis of a rejected claim by one Insolvency Practitioner where a large foodstuff supplier had delivered nearly $400,000 worth of stock to a customer in the months leading up to insolvency. The supplier was dismayed that their claim had been rejected.

Upon consultation with their PPSA advisor, they found that the Insolvency Practitioner failed to mention that Section 20b of the PPSA goes on to say that the security agreement may also be ‘adopted or accepted by the grantor in a way that shows they intend to be bound by the terms’ (again paraphrased).

Following intervention by their PPSA consultant, the supplier collected all stock on hand and received a payment in relation to the insolvent company’s debtors. Result = delighted supplier.

2. Is your PPS registration correct?

It goes without saying that your registration must be perfect. The selection of the multiple variables must be correct and you must have identified your grantor in accordance with the PPSA rules. Seek help from your lawyer or PPSA consultant if you are not sure.

3. Do you understand what you are entitled to as a secured creditor?

Where is your stock? Have you counted your raw materials? Have your supplies been co-mingled? Have they become finished goods? Have they been sold? Are you entitled to any proceeds from the sale of your supplies?

Even where everything has been done correctly, suppliers will generally have two claims - one which is ‘secured’ and one which is ‘unsecured’. It is vitally important that the ‘secured’ element is quantified (and agreed with the Insolvency Practitioner) as soon as possible after insolvency.

In the above foodstuff supplier case, 30% of the stock on hand was sold by the Insolvency Practitioner in the few days following his appointment. The Insolvency Practitioner declared this fact but how would a supplier ever know if they turned up a week or two later to count their stock to find it all gone. The best advice is to act quickly to determine your ‘secured’ claim. Remember to ask about where your supplies have created or contributed to book debts.

4. Don’t just accept a rejection

Based on Lynne’s experience, she estimates that in excess of 95% of valid PPSA claims are never paid out. Insolvency Practitioners use a number of reasons (Lynne knows this because she used them herself for 15 years) such as they can’t identify which stock has been paid for and which stock hasn’t so the claim is rejected.  Another favourite is they can’t identify which stock was supplied by ABC Pty Ltd and which stock was supplied by DEF Pty Ltd (the only two suppliers of steel to an insolvent company) so both claims are rejected.

The argument to the first of these comes down to reasonableness. This was a wood supplier that delivered $400,000 of wood late on a Friday. The insolvency occurred on the Monday. Of course the wood was all still there and not paid for. All stock was returned. Result  = another delighted supplier.

The solution to the second one requires a bluff. The suggestion that you are brokering a deal between ABC and DEF to amalgamate their ROT claims. It pays to get creative. The Insolvency Practitioner settled ABC’s claim and they were delighted.  As far as Lynne’s knows, DEF didn’t get paid.

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