Recent changes in legislation negates the asset protect traditionally associated with your Business or Family Trust. In essence if you’re using a trust at the moment to protect your business assets and you haven’t updated your structure, those assets are more than likely no longer protected.
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So today we are going to discuss,
Now you may or may not be aware but there were some major changes in legislation which have forever changed the protection provided by traditional trusts.
For the past 30 to 40 years businesses have been established using a trust or holding company to protect the assets of a business, and then a separate trading entity which operates the business and essentially holds the risk.
This was originally designed to ensure that should your trading entity experience future financial difficulties; your Business assets were always protected.
Unfortunately, This is No Longer the Case
In the last few years, the Australian Government introduced a piece of legislation called the Personal Property Securities Act. Along with the Act also came it’s registry, which is basically a government online message board / Electronic Register which is called the Personal Property Securities Register or PPSR.
So the PPSA is the Act or the piece of legislation, and the PPSR is the Government Register where you actually go to place a security interest/or record your ownership in good or equipment, which is now required by law if you want to maintain your ownership of those goods or equipment.
Now I am not going to go into too much information on the PPSA as we have a whole separate video which goes into a little detail about the PPSA and how it works, so I will put a like in the description above if you want to go and check that out but,
But here is where it gets interesting.
As a result of the PPSA Legislation, title no longer exists, or ownership no longer exists, without first being registered on the PPSR. So, if you want to maintain ownership in any goods or equipment you must register that interest on the PPSR.
So that clause on the bottom of most invoices that say, goods remain our until they have been paid for, No Longer Valid.
Now in order for an entity to maintain ownership of their equipment, or for any PPSA Registration to be valid and legally binding, the entity registering the security interest or ownership must be able to demonstrate two key points.
Which is why of the approximate 8,000,000 PPSA Registrations which are present at any one time, it is estimated that 80% are invalid.
Now don’t get me wrong if you have a business or a trading entity which also owns equipment or assets such as vehicles, trailers, conveyor systems, essentially anything of value, and your happy for that equipment to be classed as assets of your business or your trading entity, then you don’t have to do anything. Just know that those assets will be claimed by any liquidator appointed to your business should it get into future financial issues.
However, if you have a holding company or trust wishing to maintain ownership of your existing goods or equipment then you will need,
Now, in order to get your head around this you must remember the key difference in the legislation after the introduction of the PPSA, Title No Longer Exists without a PPSA Registration.
Which means if your goods or equipment are not registered on the PPSR are being used as part of the normal operation of your business, a liquidator can seize that equipment and treat it like any other assets of the businesses when it comes to the liquidation of your business. And remember liquidators have seen everything, so don’t think you will just be able to remove the equipment prior to the liquidation of your business to essentially hide your assets from the liquidators, as that probably won’t work.
There was a court case not so long ago were the owner of a business thought exactly the same thing and the judge ordered the return $1.8 million in excavation equipment to the site in which the business was operating, at which point the liquidator promptly seized the assets. In this case there were a couple of extenuating circumstances, but you see were I’m going with this. A traditional Trust structure no longer protects the assets of your business.
So, what the answer,
It is really quite simple, all you need to do is have an agreement between your trust or holding company and trading entity which includes a list of all the appropriate equipment in the trust, and have it registered on the PPSR. But remember what I said earlier, of the 8 000 000 Registrations on the PPSR, 80% are invalid.
Any agreement between your Trust/Holding company and your trading entity must include the appropriate legislation, must include the appropriate authority to be registered on the PPSR, it must be legally binding, and it must be signed by representatives of both entities.
The agreements I am talking about are called Chattel Leases, they incorporate all the appropriate legislation along with an asset register, and best of all it only costs you $6 to register your Chattel Lease on the PPSR and your assets are protected for 7 years.
And if we are lucky enough for you to choose CCA to develop your Chattel Lease for you, we will not only register your Chattel Lease on the PPSR for you, (so we both know it’s been done correctly) but we will also maintain it on the PPSR on your behalf for the next 7 years.
Now I hope you have found this information useful. Unfortunately, there are very few people talking about the PPSA and it’s impact on businesses, let alone have an understanding on its impact on Trusts, but the legislation is the legislation. And look I say this in the nicest way, you are either up to date with the legislation and are protected by it or you’re not. And unfortunately, these days, in this economic climate, it’s only a matter of time before most businesses will end up with an intimate knowledge of the PPSA Legislation.
Well, I think that about covers the basics from a PPSA Trust point of view.
There will be things I’ve missed or forgotten to mention, or alternatively you probably have a few questions, so what I am going to ask you to do is to click the below link called Request a Chat, fill in your contact details and we will give you a call to discuss protecting your trust’s assets.
There’s absolutely No Obligation, if we can help answer your questions you have now, then you will probably touch base when you do have a need.
And don’t forget have a look in the description above for links to all our other Information Video’s, especially our loan agreements, they seem to be very popular at the moment.
Our sincere hope is that you have gained a little more knowledge to help protect your business in the last few minutes. I hope you have a Great Day, and please stay safe.