Automotive
Expired PPSR registration leads to catastrophic $3 million financial loss
“It’s always devastating to see businesses suffer catastrophic losses such as these, especially when such a low-cost, effective solution exists.”
Business Summary
Master Manufacturing is an Australian manufacturer who supplies parts to a broad range of businesses on trade credit subject to retention of title terms. These parts are installed and transformed by a variety of industries and end uses.
The Challenge
Master Manufacturing is an Australian manufacturer who supplies parts to a broad range of businesses on trade credit subject to retention of title terms. These parts are installed and transformed by a variety of industries and end uses.
They have used PPSR registrations as a risk management strategy to protect themselves from financial loss for many years. More recently however, staff changes led to a process breakdown where PPSR registrations were not being renewed. This has had a severe consequence for their business. Their customer ‘Debt Manufacturing’ has recently become insolvent, whilst owing $3 million to Master Manufacturing. Upon hearing the news, Master Manufacturing set about gathering documents in support of their secured PPSR claim only to find their PPSR registration had lapsed twelve months prior.
The Solution
Registering an interest on PPSR is the only way to obtain legal rights (and priority) to your supplied goods. In the event of customer insolvency, you become a secured creditor and are first in line for payment. Cost is minimal and security usually lasts for seven years. Registrations can be renewed for a further 7 years provided this is done prior to expiry.
So what to do when a PPSR renewal has been missed? In this case, because Debt Manufacturing has become insolvent it is too late to act. However, if the customer is trading there are actions you can still take.
There is no ideal solution and each of the options has drawbacks. You must choose what is best for your business, taking into consideration the type of security, your exposure, the customer risk assessment and, commercially, whether the customer in question is a key customer.
Below are three general options to consider in relation to the supply of goods on credit subject to retention of title terms (for informational purposes only, Access Intell is not a law firm and therefore is unable to provide legal advice).
- The best option is to get your customer to sign a new application (accepting your terms and conditions of trade) and register straight away. This only covers future supplies from the date of the new registration (nothing already supplied), and it may be problematic getting them to sign terms and conditions again for continuing supplies.
- The next best option is to approach the court and get an extension of time in which to renew. This tends to be costly, time consuming and not guaranteed. The courts typically grant the extension on the condition that they can withdraw if it is later found a third party was prejudiced by the extension of time.
- The last option is to register again and cross your fingers. For the sale of goods on credit, subject to retention of title, your security will be ‘ineffective’ for six months from the date of registration, due to the application of S588FL of the Corporations Act. Once you get past the six months your security will be effective again provided you entered into the original agreement after January 2012.
The Result
Unfortunately, Master Manufacturer’s PPSR registration was not renewed before the expiry date, and therefore was not in effect when their customer became insolvent. This has resulted in Master Manufacturer being classed as an Unsecured Creditor. They have a low likelihood of being paid the $3 million outstanding from the insolvency administration. An expensive lesson to learn on the importance of staying on top of renewals.
“It’s always devastating to see businesses suffer catastrophic losses such as these, especially when such a low-cost, effective solution exists. I urge all businesses to firstly ensure that they register on the PPSR and secondly to make sure they have a reliable process in place to renew needed registrations. Our Access PPSR product helps you stay on top of expiring registrations with alerts displayed in our dashboard. Our team also personally follow up with clients regarding upcoming renewals.”
Lynne Walton
Founder and CEO of Access Intell
Automate your PPSR registrations
Access Intell can automate the management of your PPSR registrations to ensure your interests are secured. Even better, our credit monitoring intelligence immediately alerts you to customer changes so you can proactively manage your risk before it’s too late. Reach out to learn how.