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Why should you pay attention to the PPSA?

4 Minute Read
Written by Simon Read – PPSadvisory, Founder & Director
22 November 2023

You might be wondering, “I already have trade credit insurance, so why should I bother with the Personal Property Securities Act (PPSA)?” The answer is that compliance with the PPSA should be seen as a complement to your credit insurance. Together they work to reduce the risk of loss.

The PPSA was introduced to help suppliers maximise their returns from insolvent customers. Any improvement in the return reduces (and sometimes eliminates) the need to make a claim on your trade credit insurance. This, in turn, helps minimise your claims history and any negative impact it might have on your future premiums.

What’s more, the PPSA is not complicated and is surprisingly cost-effective. If you are selling goods on credit, a single PPS registration costing $10 provides you with 7 years of protection!

Let’s consider the simplest form of security for payment, retention of title (ROT). Most businesses already have ROT clauses in their terms of trade. As a supplier, you retain title to the goods you have supplied until you have been paid for them. If you are a supplier to an insolvent customer and you have registered your security, you can recover your goods. Many might argue, “But I don’t want my goods back.” However, if the administrator intends to continue trading the insolvent business, they will need your goods to do so. This puts you in a position to negotiate payment for your goods.

Let’s see how this works in real-life. The following examples are all based on actual cases (with names changed).

Case 1:

Big Fuel sells diesel fuel and has ROT, but they had not registered this security. In 2019, their customer, Yulara Mining, became insolvent. An administrator was appointed and took control of Yulara’s operations. At the time of appointment, there were about 68,000 litres of unpaid diesel in stock. The administrator took all of it, and Big Fuel became an unsecured creditor for the money owed to them.

After starting to comply with the PPSA, Big Fuel has survived three customer collapses in the past four years and has managed to recover everything they were owed. Their PPSR registration ensures that they can enforce their ROT security. Subsequent administrators have had to pay for the fuel on hand, rather than simply taking it.

Case 2:

Great Australian Equipment supplies large mining equipment and replacement engines. While they have ROT, they were not complying with the PPSA. When their client, Byford Transport, became insolvent, they had not paid for a recently delivered engine. Great Australian suffered a loss of $880,000.

Eighteen months later, after becoming PPSA compliant, Great Australian fully recovered their $1.2 million debt from another insolvent customer. The difference was a single PPS registration.

Case 3:

Sticky Labels is a supplier of wine labels and complies with the PPSA. When one of their customers collapsed, owing them $6,000, they thought the PPSA wouldn’t help them. After all, what’s the value in recovering a bunch of custom labels (most of which had already been affixed to bottled wine)? But that’s not the point. The administrator intended to sell the bottled wine but couldn’t do so because the labels (even those affixed to the bottles) belonged to Sticky Labels. The administrator paid Sticky their outstanding $6,000 so that he could sell the bottles.

Case 4:

LDP provides spare parts for transport companies. They have ROT and comply with the PPSA. In 2018, a major customer collapsed, owing them $1.3 million. Many of the parts they had supplied had already been fitted to the customer’s fleet of trailers. The PPSA treats these parts as accessions, which entitles LDP to remove them if they haven’t been paid for. The administrator wanted to keep the transport business operational, so he had to reach a settlement with LDP to keep the fleet on the road. LDP recovered 97% of their debt.

I could go on with more examples. The PPSA should be seen as a supplement to your trade credit insurance. If you want to learn more about the benefits of compliance, let us perform an Impact Assessment service. We will review your terms of trade, identify your security for payment, and provide details on the costs and benefits of compliance. This will enable you to make an informed decision about whether the PPSA is right for your business. The service fee is only $220 and is worth every cent.

Simon Read
Founder and Director
PPSAdvisory

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