Don’t Lose 6 X Months of Revenue
When A Clients Goes Bust
Protect Your Business from Liquidations with the PPSR (2024)
Today we are going to discuss how use the PPSA and Personal Property Securities Register to save your business 10’s if not 100’s of thousands of dollars when one or more of your clients goes into administration or files for liquidation.
Key Points,
- What is the Personal Property Securities Act,
- How Does It Works,
- How Can I Protect My Business,
What Are The Changes
The Legislation
The PPSA or Personal Property Securities Act is legislation that outlines the changes in Legislation and how those changes affect your business. In short, every business now has a PPSA file where creditors can go to register a security Interest when they extend credit.
The Registration
The PPSR or Personal Property Securities Register is the government-run electronic register, or notice board, in which creditor can register their security Interest when they extend credit. Depending on the type of Security Interest being registered will determine their security or protection.
The Benefits
Once registered on the PPSR a business automatically becomes a Secured Creditor over the entity in which they registered with the same security as the banks when they extend credit. As a matter of fact, it’s exactly the same place a bank will register their security interest in a vehicle when they provide you with a car loan.
How It Works
Title or Ownership In Goods Or Equipment No Longer Exists
Since the introduction of the PPSA title in goods or equipment no longer exists without a PPSA Registration. This means the minute your goods or equipment leave your premises; you no longer own them. Payment or the lack thereof doesn’t come into consideration.
Automatically An Unsecured Creditor
Under the legislation, if a business hasn’t registered on the PPSR that business is automatically classified as an unsecured creditor. Why Does That Matter?
Preferential Payment Clawback
This means that if any of your current or previous clients were to file for liquidation at any point in the future, the appointed liquidator has the legal right to demand the return of any payments made to your business in the previous 6 months.
We have even seen this time period extend to 18 months as the legislation outlines that the 6 month Clawback Period is from the point in which the liquidator determines the point of insolvency. (the point the business was trading insolvent)
How to Protect Your Business
Up To Date Terms and Conditions
Having up to date, legally binding Terms and Conditions is the only way you can register a valid PPSA Registration. The reason being that the legislation is very clear on what constitutes a valid registration. Firstly, there must be an agreement incorporating the appropriate legislation, and secondly that agreement must be signed by both parties.
Invalid PPSA Registrations
Of the average 8 000 000 PPSA Registrations on the PPSR at any one time, it’s estimated that perhaps as many as 80% or 6 500 000 are possibly registered incorrectly or potentially invalid. Leaving all invalid registrations subject to Preferential Payment Clawback.
Preferential Payment Clawback
Preferential Payment Clawback is outlined in 588FA and part of the Corporations Act 2001. It essentially allows liquidators the opportunity to claw back any payments being made to an unsecured creditor when a company goes into liquidation if there are secured creditors which still haven’t been paid. The liquidators have the legal right to ask for any payments made to unsecured creditor in the previous 6 months from the point of insolvency.