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The Personal Property Securities Act and Manufacturers

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The implications of the Personal Property Securities Act 2009 (PPSA) are far reaching and will impact every Australian business in some form. This week we continue our PPSA information series and review some of the key issues that may be relevant to manufacturers.

Retention of Title terms

Many manufacturers supply their goods to customers on retention of title (ROT) terms. Under the new legislation, ROT terms will constitute a security interest and must be registered on the electronic register in the prescribed time in order to be enforceable. The manufacturer will need to electronically lodge a financing statement and upon successful registration, will have a perfected security interest. The customer (who will be known as the grantor) will be viewed as the owner of the goods and the manufacturer’s rights will be reduced to those of a secured creditor.

If a manufacturer does not perfect the security interest by registration and the grantor goes to liquidation, the manufacturer will lose priority to the security interest and the liquidator will take the goods free of the unperfected security interest.

Financing Statements

After lodging a financing statement (for a fee), the manufacturer will need to provide the verification statement of the security interest to the grantor. It is important to note that there are potential consequences for a secured party if they do not provide the grantor with the verification statement. It will be possible for manufacturers to lodge only one financing statement at the start of a trading relationship.

What you need to do

We recommend that you:

  • review the terms of customer supply agreements as they will need to be rewritten
  • identify what interests in goods or services may be enforceable
  • identify the goods you purchase which may be subject to a security interest
  • put in place systems to effectively manage registration of interests
  • review your arrangements regarding leasing of equipment
  • review your agreements regarding supply of equipment on deferred payment terms
  • review your intellectual property rights such as computer software (such as source code) that may constitute a security interest
  • review your export and importing arrangements

Our Corporate Advisory lawyers are able to answer any questions you may have regarding the incoming PPSA legislation.

Authors:  Savvas Apostolou and Susan Reece-Jones

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