Case Three - Poor Housekeeping

Learn why poor housekeeping cost a company its stock.<read more>

Since this is not a reported court case, the name of the company has been changed.

Introduction

Our case studies are drawn from New Zealand where the Personal Property Securities Act or PPSA has been in force since 2002.

We follow a standard format:

• The facts
• The outcome
• Lessons learned
• How this applies in Australia

The facts

• Hapless had out their customer on "stop credit" for slow payment
• A cheque for $20k was offered to get further supplies
• The goods were delivered
• A receiver was appointed before the cheque cleared - so it bounced
• Hapless was philosophical about the cheque, and was glad about registering the debtor on PPSR since at least they would get the goods back that they had just delivered
• Or would they?

The outcome

Hapless was quite confident about getting the goods back since:

• There were signed terms containing a retention of title clause
• The debtor was registered on PPSR prior to delivery of the goods
• It was easy to identiry the goods since they had not even been moved from the customer's loading dock

Despite this – they lost their goods

The receiver quite correctly asked for all documentation and on close inspection, the claim fell apart.

Hapless had been trading with this customer for many years – let’s call them Chequers Ltd. A few years ago a private equity company had made a substantial investment and as part of the restructuring, the business was transferred to a new company Chequers 2002 Ltd. The management were left substantially unchanged and the business went on much as before.

Hapless had correctly registered against Chequers 2002 Ltd on PPSR.

The problem was that in 2002 they forgot to get new terms signed and the only terms they had were with Chequers Ltd – a different legal entity.

The receiver, again quite correctly said that the claim failed since Hapless did not have a signed security agreement (terms) with Chequers 2002 Ltd (In receivership)
Lessons learned
The real lesson here is that with PPSA the devil is in the detail. In this example, it shows how important it is to know your customer. Names can change many times over – the legal entity is identified by its company number in NZ or ACN in Australia. These do not change.

It is important to have procedures in place to pick up these sorts of changes.
How this applies in Australia
The outcome in Australia would have been very similar. The law here is not quite as strict as in NZ on this particular point but we still think the claim would fail.

But when we consider the Australian position there is a lot of detail you must get right, including:

• Registering within time to preserve your position
• Identifying your debtor in accordance with the PPS Regulations
• Describing your goods correctly
• Stating what type of security you claim
• How long your security lasts for
• Whether you claim proceeds
• Whether the goods are inventory
• Whether the goods are subject to control
• Whether they are used for commercial or consumer purposes

Our mantra is “Do it once – do it right!”

To find out how, contact us:

E-mail – enquiries @edxservices.com.au
Call – 03 9866 4559

We guarantee to return your call no later than the next business day.

Disclaimer
This document is intended to give a general indication of how PPSA may apply in Australia, drawing from New Zealand experience since 2002. It is not legal advice and the reader is not entitled to rely on it for an purpose. Neither EDX Australia Pty Ltd, its officers and employees accept any liability to any person, on any account whatsoever.