Case Two - Steel Supplier

Learn why a steel supplier was the only trade creditor to get paid when a roofing contractor became insolvent. <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

• Roofman supplied steel roofing materials to a roofing contractor
• Its terms and of sale included a retention of title or Romalpa clause
• A receiver was appointed
• There were 15 contracts in progress – using steel supplied by Roofman
• The receiver wanted to continue to trade the business

The outcome

• There were two contracts where the jobs were finished, all money had been paid and used to pay general expenses – Roofman lost out.
• Some contracts had recently been finished, but the customers had yet to pay the contractor. Roofman allowed the receiver to collect the debts – on his undertaking to account to Roofman for the value of the steel once the debt was collected.
• Other contracts were still in progress. Roofman allowed the receiver to complete the contracts – on his undertaking to account to Roofman for the value of the steel on completion.
• Roofman got about ¾ of its money back.
• All other trade creditors faced a total loss.

Lessons learned

• Roofman had fully complied with all the requirements of PPSA, including registering against the contractor on the Personal Property Securities Register (PPSR)
• There was good paperwork – we were able to match unpaid invoices to specific contracts
• We acted early and fast
• Roofman used EDX!

The most important lesson is that although Roofman’s rights came from its retention of title clause we did not take back any steel. Instead we were chasing book debts or money tied up in contracts.

Where your goods have been sold or dealt with, this creates what is called “proceeds”. Under PPSA a secured creditor’s rights extend to proceeds – which can be a very valuable remedy.
How this applies in Australia
The Australian legislation is very similar to NZ in this area and we would expect a similar outcome.

You may have noticed that we used words like “secured creditor” and “allowed the receiver”. This is because under PPSA, if you have a retention of title clause you become a secured creditor.

More importantly, if you comply with all requirements of PPSA your claim to your goods will outrank all other creditors – including the bank and preferential creditors. In most cases you will have first claim on proceeds. If the receiver had not agreed to co-operate we could have “leapfrogged” him and gone straight to the building owners.

If you have been treated in a high handed way by receivers or liquidators in the past and want to turn the tables – get in touch with us for more information on what you need to do:

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.