Automotive
Successful PPSA Retention of Title claim against customer in liquidation
“Faced with the prospect of fighting a substantial unfair preference claim, while holding a PPSR, we worked with Access Intell to ‘negotiate’ a more commercial outcome. Lynne’s commercial approach helped us avoid a protracted legal battle and gave us the results we wanted.”
Business Summary
The Challenge
Happy Steel supplied $400,000 worth of steel on retention of title credit terms (that you retain a right to reclaim the goods until they are paid for) to CR Steel in the lead up to liquidation. CR Steel’s liquidator rejected Happy Steel’s PPSA claim as they ‘couldn’t identify which steel had been supplied by Happy Steel and which by other steel suppliers’.
Happy Steel was very annoyed at this because they had only delivered $100,000 of the balance outstanding the day before the insolvency occurred. They were also concerned about a potential unfair preference claim being raised for millions of dollars (transactions that discriminate in favour of one creditor at the expense of other creditors).
Access Intell’s principal, Lynne Walton, met with Happy Steel and suggested that the rejection of their claim was arguable particularly considering the delivery of $100,000 worth of stock the day prior to the liquidator’s appointment. Fortunately, Happy Steel had registered a PMSI on the PPSR against the goods supplied.
The Solution
Happy Steel engaged Lynne to represent them in the claim. Lynne had two valid arguments and one strategy to win.
Argument one:
Lynne obtained an affidavit from a former employee of CR Steel confirming that the steel took circa 3 months to be processed through its system before sale or construction. The debt was no more than 4 months old. On the balance of probability, a significant proportion of the steel was still in the production process and the remainder was highly likely to be in debts created from the sale of the steel. Happy Steel could quite reasonably claim the full amount of the debt as a PMSI which should be accepted and settled.
Argument two:
In relation to the unfair preference claim, S588 of the Corporations Act states that the supplier being paid must have been preferred over the general body of unsecured creditors. PPSA classes a PMSI holder as a secured creditor which means that Happy Steel could not have been preferred over the unsecured creditors by being paid as they did not belong to that class of creditor. They became a secured creditor having registered their PMSI on PPSR. Lynne’s argument was that a preference claim did not exist.
The liquidator suggested that ‘apportioning the stock and debtors between the steel suppliers would be too time consuming and difficult’. Lynne suggested to the liquidator that Happy Steel was contemplating amalgamating its Retention of Title claim with those of the other steel suppliers. This was a bluff – but it worked.
The Result
The liquidator agreed to the claim, made a full and final substantial settlement payment for the stock within one month and confirmed they would not pursue any unfair preference payment. Happy Steel was delighted.
This case demonstrates the vital importance of registering on the PPSR for companies that sell goods based on retention of title credit terms. Talk to our team today about how our automated, accurate PPSR product can protect your business from financial loss.
“Even though the liquidator had originally rejected our secure claim, we worked with Access Intell to ‘negotiate’ a more commercial outcome that included formal recognition of our secure claim and a substantial payment. Lynne’s approach gave us the results we wanted and needed.”
National Credit Manager
Happy Steel
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