Is possession 9/10ths of the law?
For many businesses, the introduction of the Personal Property Securities Act (PPSA) back in 2012 has resulted significant changes in the way they protect themselves against insolvent customers.
A number of court cases since 2012 have confirmed that for businesses who have failed to come to grips with the PPSA, possession is not 9/10ths of the law, it is 10/10ths.
Imagine for a moment that you own an equipment hire business……
Your best client arranges to hire one of your most expensive pieces of equipment. You negotiate a great rate, then load it up and deliver it to them.
Two weeks later you hear that your client has gone bust and that a liquidator has been appointed.
The only sensible thing to do is to get in the truck and go and pick up your equipment! After all, the equipment belongs to you and your hire agreement stipulates that you have the right to take it back in these circumstances.
When you get there, you are greeted by the liquidator who dutifully tells you that the equipment no longer belongs to you and would you kindly leave the premises. He must be joking right? Wrong!
The PPSA says that unless you register your security interest in the equipment on the Personal Property Securities Register (PPSR) you have no priority claim to the equipment.
Having neglected to register, you have no right to take back your equipment and must wait in line with the rest of the unsecured creditors. The fact that you actually own the equipment is irrelevant. Likewise, your hire agreement is irrelevant and offers you no protection.
The reality is that in many liquidations, the unsecured creditors will not see a red cent. This means that you can kiss your equipment goodbye along with any hope of being paid your hire fee.
This situation takes the old saying that possession is 9/10ths of the law and dials it up to 10/10ths.
The Supreme Court of Victoria's decision in the Relux case illustrates this perfectly.
So how can I protect my business?
If your business:
Sells goods on retention of title terms; or
Sells goods on consignment; or
Leases/hires/rents goods to customers; or
You have set up a business structure where one entity holds the assets and another carries on the business.
You need to understand how the PPSA works and seriously look at registering your security interest in those goods on the PPSR. This will ensure that you have priority and will be able to take possession of the goods that rightfully belong to you.
For more information, we recommend that you have a read of the PPSR Business Guide. You can also contact our office to discuss how the PPSA may affect your business and how you can best protect yourself.