Retention of title agreements under the PPSA

As more post-30 January 2012 insolvencies are administered the retention of title changes made by the PPSA are starting to be noticed by both suppliers and retailers.

Here is a recap of the issues you need to know about if your retention of title agreement was made after 30 January 2012:

1. If an unpaid seller retains title why can other creditors and administrators claim the goods?

Under the PPSA, the unpaid seller must register their interest to obtain priority status.

To obtain priority over an “all assets” general security charge given by a buyer (eg to its bank) a seller must obtain “super priority” by registering a purchase money security interest (PMSI).

2.How does an unpaid seller get a PMSI?

Amongst other things the buyer must take possession, there must be a written retention of title agreement and the goods must be properly described in a financing statement which must be registered within 15 business days after the buyer takes possession.

There are special rules for inventory: in order to achieve super priority to inventory, registration of the seller’s interest must be completed before the goods are delivered.

3.Can a seller who has registered their ROT under the PPSA still lose their rights?

The seller may still lose their rights under certain circumstances, including if the goods are processed with other goods or affixed to other goods or land.

Sellers will also lose their rights if they do not get super priority. They can only achieve super priority in respect of unpaid goods which have been supplied.

This means that sellers will not be able to claim priority for all previously supplied goods in an insolvency against a general security holder.

For a seller with an ROT agreement that secures all goods supplied for all money owing by the buyer, to obtain security over goods that have already been paid for a separate registration for the non-PMSI interest is required.

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