Will your retention of title clause be effective under the Personal Property Securities Act?

From 10 October 2011 an unpaid seller can register their interest in the goods with the Personal Property Securities Register. Unless it is registered the retention of title clause on its own may not be sufficient for a seller to claim back possession of the goods either from the buyer, a purchaser from the buyer, the buyer’s other creditors or the buyer’s bankruptcy trustee, receiver or liquidator.

Most terms and conditions of sale of goods to a business currently contain a retention of title clause (also known as a “Romalpa” clause after a case of that name) by which the seller claims to retain ownership in the goods until it is paid even though possession has been given to the buyer.

This clause is included in the hope that if a buyer becomes insolvent the seller can get the goods back from the liquidator. This assumes the seller can identify the goods it sold and prove they were not paid for them. It also assumes the goods have not been attached to other goods or used in manufacturing in a way that the goods cannot be separated and returned.

Registering the interest does not necessarily mean that the seller will always be able to seize the goods from an innocent third party if the buyer becomes insolvent but the seller may be able to have priority in any claim against the proceeds of sale. And registration of the interest will support a claim on the goods if a liquidator still has possession of them.

But if a seller does not register the interest they become an unsecured creditor against the buyer if the buyer becomes insolvent.

How do you register a retention of title agreement?
In order to register a retention of title on the Personal Property Securities Register for a commercial transaction you will need to specify certain information such as:
• the type of collateral (eg is it for a specific type of property such as a motor vehicle or some other type of goods or for all present and after acquired property),
• whether it relates to goods with specific serial numbers,
• whether you are claiming a “purchase money security interest”, and
• whether the goods are inventory and the start and end dates of your interest.

The fee payable to register your interest will depend on the period of your interest: is it up to 7 years, between 7 and 25 years or indefinite?

The period will likely depend on whether you will have further transactions with the buyer and whether you want to register an interest each time you make a sale: you might do this if you sell serial numbered goods, but it may not be necessary.

Sellers will be able to register a single registration against buyers for multiple future sales. You need to decide whether you should register every Retention of Title you have at least once for each customer.

How long do you have to register existing retention of title agreements?
You will have 2 years from October 2011 to register an existing retention of title agreement.

But if there is a dispute between two transitional security interests, the one that is registered will have priority.

What you need to do
1. Review your conditions of sale for existing customers and decide whether you want to register all existing agreements immediately from 10 October 2011.
2. Decide your credit policies and develop registration procedures for new customers from 10 October 2011.

Whether you are a manufacturer or a wholesaler Bright Law can assist you to develop the required policies and procedures and advise you on the implications of the Personal Property Securities Act on your business.

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