My accountant set up a separate company to own equipment, so I am safe…aren’t I?
If your equipment is not registered under the Personal Property Securities Act (PPSA )it is not safe. If you operate a trading business using equipment owned by another related entity under a hire or lease arrangement you are still at risk of these assets forming part of the pool of assets to be liquidated. If the insolvent trading business is in possession of the related entities equipment, its administrators will treat the equipment as ‘fair game’ and it will be sold off to pay the trading businesses creditors.
In house asset holding entity arrangements do not attract different rules or special treatment. The asset holding company needs to record its interest in the equipment on the PPS Register. If the trading entity on-hires the equipment, the trading company also needs to register its interest in the equipment.
I have correctly registered my equipment and goods. My client becomes insolvent. What happens next?
The appointed Insolvency Practitioner will perform a search of the PPS Register and will identify your registration of your interest in your property. If your registration is correct the Insolvency Practitioner will contact you to ascertain the interest you have in the property you’re claiming.
You will need to produce a written agreement between you and the insolvent customer (hire or sale agreement, terms of trade etc). You will also have to identify your equipment/goods and be able to match them to unpaid invoices or other agreements.
If all is in order the Insolvency Practitioner will return the hire equipment to you.
The recovery process for suppliers retaining title to the goods they’ve sold may be more complicated. Such suppliers have a secured interest in:
• any goods still on hand;
• any work in progress where the supplied goods have been attached to, comingled or manufactured with other goods;
• any debts due to the insolvent customer from the sale of the suppliers goods.
For example, First Steel supplies $75,000 of steel to a fabricator. On the fabricators collapse First Steel is:
• Now a secured creditor over the $10,000 steel stocks still on hand;
• Now a secured creditor over the fabricated work in progress of $15,000.
• Now a secured creditor over the fabricators outstanding debtors where First Steel’s steel was used.
How much does it cost to register and how do I register?
Most suppliers can obtain 7 years protection for $6.80 per customer (less than $1/year). One registration is enough to cover all future supplies, so it couldn’t be simpler. You prepare the registrations on line. First you need to create an account and then register assets/customers on line.
A word of warning: the PPSA is not a DIY project. Many businesses doing it themselves may be doing it incorrectly.
For more complex registrations you may need to use a consultant. We recommend EDX (WA) Pty Ltd who are experts in the personal property securities area. Contact [email protected]
Author: Adrian Wardlaw
Email: [email protected]
