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Mecardo Blog

Protect yourself from receivership

Posted by Olivia Agar on 29 March 2017
Olivia Agar

The Australian grain sector has lost over $54 million since deregulation due to trader insolvencies. Using written contracts and dealing with known businesses may help reduce counterparty risk but unfortunately when it comes down to claiming legal property title, someone else may have already beaten you to it.

In this article we look at how the Personal Property Security Register (PPSR), can be used to protect from counterparty risk not just for grain, but any other agricultural transaction. 

In 2012 The Federal Government introduced the Personal Property Security Register (PPSR) to help individuals and businesses secure their rights to personal property, ensuring it is adequately protected when involved parties become insolvent. Using this online registration can be a simple way for producers to reduce risk in their business and improve their position for financing, yet less than 1% of registrations last year were for agricultural collateral. So how can it be used by businesses in agriculture and is it worth the effort?

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It is recommended that for any transaction where a party gains possession of your property (goods), whether for lease, long term storage or ownership, you should register your security interest in that property using the PPSR.

Failing to register your interest, could mean that you lose rights to recover the goods or proceeds once they are sold or leased by the buyer if they were to become insolvent or fail to pay. To top it off, priority of rights under registration by multiple parties with interest is quite often served on a first in time first in line basis, so registering as soon as the contract or financial statement is received is the safest option.

There are three main ways in which you can use the PPSR:

  1. Check on the register that goods you want to buy or lease are free of financed debt i.e. safe from possible repossession.
  2. Register your security interest in the goods or assets to help ensure interest is protected to reclaim. For example, growers should register their interest in delivered grain as this will protect against grain buyer or bulk handler insolvency, even when the grain is comingled.
  3. By using the register for your business, financiers will be able to view your security interests and have more confidence in your businesses which may make lending more attractive.

Farm transactions and agreements that may leave you with security interest include:

  • Selling or buying livestock, wool, timber, grain, feed or fertiliser, crops & nursery trees under Retention of Title (ROT)
  • Leasing or other hiring out of stud or breeding cattle, horses, sheep etc
  • Selling, leasing or purchasing farm machinery
  • Agistment agreements

Now while all you need to register is a PPSR account and a written agreement or financial statement related to the purchase or sale, like most things in life there is a small price tag ($6.80) attached to each registration. However, by describing your goods under contract and registration as “all goods, now and in the future, supplied by ‘seller name’ to ‘buyer name’” one registration can be used to cover all goods and assets supplied to that party.Fotolia_45271275_S_2687605b.jpg

Like insurance, with any luck taking the time and money to protect your security interests using the PPSR will prove a waste. But if the day comes when your rights are in question, the PPSR will have your back.

What does this mean?
By registering your security interest in goods you have yet to receive payment for you can lessen the risk of losing the goods and recover the debt if the customer does not pay or become insolvent. Searching the register for claims of existing security interest against second-hand goods you wish to purchase will inform you whether these goods could be repossessed if the seller becomes insolvent.

Key Points

  • If you enter a transaction where someone else gains possession of your goods, you should register your security interest in those goods using the PPSR.
  • If you buy second-hand equipment, it is worthwhile performing a search on the PPSR.
  • It can help ensure you have title to regain your proceeds in the fallout of insolvencies.
  • Protecting yourself against counterparty default, is an approprive risk management strategy to undertake.
  • Get in quick, as priority to claims is often given to the party that registers first
  • Using the PPSR could help to finance your business

More detailed Information on how to use the PPSR is available on the link below:

Visit Personal Property Securities Register