Securing your interest

4 October 2023

A retention of title clause (indicating that title remains with you until goods are paid for in full) in your contract or invoice hasn’t protected your interest on its own since the Australian High Court decision in GMAC vs Southbank Traders wherein the court confirmed that, in order for a security interest to be upheld at law, it must be 'perfected'.

This perfection is done by making a registration on the Personal Property Securities Register (PPSR).

Unless this is done, a retention of title clause is unlikely to prevail against others such as receivers or liquidators.

The PPSR is the online database of security interests in personal property in Australia.

The PPSR may be relevant to your business if you are: selling, hiring,
renting or leasing on terms, or buying and selling valuable secondhand goods, or extending credit to individuals or companies for large ticket items, such as rebuilt truck engines or transmissions.

You should back up medium and high-value sales contracts whereby goods are provided on credit or terms by registering your interest.

To be clear, another party who has registered an interest is ahead of
you in the queue should your debtor default or become insolvent or bankrupt.

Making a check of the PPSR (ppsr.gov.au) also protects businesses when buying secondhand goods: e.g., workshop equipment, computers, engines/transmissions for rebuilding, especially items with serial numbers.

A search of the register when buying secondhand goods will indicate if there is an existing security interest on the item.

If there is a prior security interest on the goods, they could be repossessed.

Registration provides protection to businesses that sell on terms, such as retention of title or consignment, or hiring, renting, or leasing out valuable goods, machinery, vehicles, and equipment.

In another landmark case, several large gas turbine power generators on hire worth millions of dollars were seized and sold by liquidators. The owners went to court seeking compensation, but were unsuccessful due to failing to have them registered on the PPSR.

Businesses can register their interest in goods they have yet to receive payment for, helping them to recover the debt and lessen the risk of losing the goods if the customer does not pay or becomes insolvent.

The PPSR legally defines the priority definition of security interests, on a ‘first in, best dressed’ basis.

Words: VACC Business and Consumer Affairs Manager John Caine. As featured in Australasian Automotive October 2023.