The Personal Property Securities Act (PPSA) became operative on 1 May 2002. Most organisations which hold traditional securities over property (other than land) like debentures and instruments by way of security as part of their business are aware of the changes encapsulated in the PPSA. However, we believe there are still many organisations that supply goods on credit and rely upon retention of title provisions, which do not yet fully appreciate the consequences of the new regime.

A well-drafted retention of title clause has traditionally been a useful tool for the suppliers of easily identifiable goods (that do not become fixtures)in the event of the insolvency of the customer. The suppliers have stepped in and recovered goods which have not become subject to the customer 's bank 's debenture, as title has not passed to the customer.

Under the PPSA, a retention of title clause is a 'security interest '.The Act requires the 'security agreement' creating the reservation of title ((usually terms of trade)to be signed by the customer or assented to in a manner permitted by the PPSA for it to be enforceable against third parties like the purchaser's bank.

The security interest will also need to be registered on the Personal Property Securities Register in respect of each customer in order to 'perfect' the security interest.

The priority of perfected securities is generally based on the time of registration with earlier registrations having priority over later registrations. However, perfected 'purchase money security interests' (PMSIs) where the money required to purchase the item is what is secured, have priority over prior registered security interests. A retention of title clause will usually be a PMSI. Therefore, provided appropriate steps are taken, the benefits of a retention of title clause can essentially be preserved. However, you must take these steps prior to 1 October 2001 to preserve your existing position in respect of moneys currently owed to you.

We recommend that all organisations that supply goods on credit and rely on retention of title arrangements contact us so that we can assist them in considering their position in light of the PPSA.

This is a general summary only and should not be taken as a substitute for specific advice.

For further information contact Michael Brooker:
michael.brooker@phillipsfox.com

Web site: Phillips Fox