Wholesalers of Stock – don’t rely on Retention of Title (ROT)
It is surprising that we still come across wholesalers who are not availing themselves of the security registration available under the Personal Properties Securities Act (PPSA) in order to protect their retention of title trading terms.
Wholesale suppliers commonly retain title in goods they have sold until they are paid for, under their terms of trade. This is a very basic form of credit control. It is well recognised as being problematic, in particular because the stock is usually allowed to be on sold in the buyer’s ordinary course of business to consumers to generate income to pay for the stock.
Retention of title still exists, but the PPSA and Corporations Act 2001 have made this mechanism a far less attractive method. Retention of title clauses are now deemed to be “securities”. If they are left unregistered on the Personal Property Register (PPSR) they will normally have no effect if there is a formal insolvency appointment to the buyer. The good news is that these clauses can be registered on the PPSR as security interests called Purchase Money Security Interests (PMSI).
The government PPSA website offers user friendly help about PMSI and how to register them: see www.ppsr.gov.au.
Some key points to note about a PMSI are:
- They must be registered before the stock is delivered;
- They are not defeated by earlier registered bank securities if so registered;
- A one off initial registration can be done for each buyer;
- They are for commercial dealings, not sales to end consumers;
- PPSA offers useful enforcement rights.
To avail themselves of a PMSI, clients will need to train their staff to both obtain the execution by the buyer of the appropriately drafted trade agreement and to then do the timely PMSI registration.
We can assist clients to both establish effective PMSI and to enforce them.
Contact James Hamilton for further information.