Case Four - Follow the Money

Learn how "Wallco" stopped a debtor from using the proceeds from the sale of their goods to pay other creditors.<read more>

Since this is not a reported 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

• Wallco supplies specialist wall and floor coverings for use in commercial buildings
• Slowcoach had won the contract to refurbish a large school and purchased all the materials from Wallco.
• Wallco had a retention of title clause and had fully complied with all PPSA requirements
• Slowcoach was typical of many contractors in the construction industry – operating on a “pay when paid” basis.
• More recently even this arrangement had started to break down and Wallco was concerned that Slowcoach was using funds collected to pay other creditors
• Slowcoach tried to order wall coverings for another contract – and Wallco refused to supply
• Slowcoach was furious and told Wallco it could “swing for the money” from the school contract.

The outcome

Wallco got paid in full

• Slowcoach had defaulted on its payment obligations, so Wallco was in a position to enforce its rights.
• It could not repossess its goods (even if it wanted to) since they had been sold to the school and in any event were by now fixed to the building.
• Their security did extend to the book debt created by the sale of their goods to the school. This means they were entitled to bypass Slowcoach and go straight to the school to demand payment of the debt.
• This would have been a disaster for Slowcoach, since in a small community rumours of financial difficulty would have spread like wildfire
• The threat of this enabled Wallco to get a solicitors undertaking for them to receive payment in to their trust account on behalf of Slowcoach. They then accounted to Wallco for its share of the debt and passed the balance back to Slowcoach.

Lessons learned

Although rights under PPSA are most often used when a debtor has become insolvent – a creditor is entitled to enforce their rights at any time after their debtor has defaulted.

You can act fast and there is no need to obtain a court judgement.

This case study is given to show how the Act can work, rather than suggesting you take this course of action every time you get a slow payer! It is the “hardball” solution and you need to be certain that you never want to trade with that customer again.

If you do have a contractor taking on a large contract which concerns you, there is no reason why you cannot put this arrangement (for money to go in to trust account) at the outset and your security would extend to the funds being held by the solicitor. This is prudent business practice rather than “hardball” and if the contractor refuses, there is probably a message in that which you do not need us to interpret.

How this applies in Australia

The law in this area is essentially the same in Australia as it is in NZ, so we are confident that a similar outcome could be achieved here.

We are not a general debt collection company, but we do help clients enforce their rights under PPSA as a secured creditor.

For more information on the steps you may take to protect your position:

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.