If your goods or property are held by another business and that business goes into receivership or liquidation, it is possible that your goods might be sold by the receivers without your consent and you will receive no payment!
The Personal Properties Securities Act ("PPSA") deals with "security interests" over items of personal property (such as goods or vehicles).
The Act enables people to register a “charge” over an item of property (similar to mortgages) so that the chargeholder retains some measure of ownership over that good in the event that they are not paid for it. Charges must be registered on the Personal Property Securities Register (“PPSR”) to be enforceable. Security interests can either be registered over all of the assets of a business (“general”) or against certain named assets (“specific”).
A Deemed Security Interest In certain situations when you supply goods to another business, the PPSA deems that you have a security interest in the goods. Therefore, if you fail to register your “deemed security interest” on the PPSR, another person who holds a general security over the assets of that business will take precedence over your actual ownership of the goods. Three types of storage where this can occur are worth explaining in more detail:
- Leases of items of property (e.g. forklifts) for more than one year (or for less than one year where the lease can be renewed and the end result is a total lease of more than one year).
- Bailment of goods for more than one year. “Bailment” is the delivery of goods from one person to another where the goods are delivered on the basis that they will be redelivered in either their original or altered form once the bailment ends. An example of this would be grapes sent to a winery for fermenting, bottling and return.
- Commercial Consignment is where the person to whom the goods were delivered will sell them on behalf of the owner.
- Delivery to an auctioneer is excluded. This type of delivery does not have to last the one year timeframe – the moment you deliver your goods to the other business they are at risk.
If you supply goods in these situations then as stated above you are deemed by the Act to have a security interest in the goods supplied. If you then fail to register a charge to protect your security interest, you will become an unsecured creditor of the business in receivership or liquidation. Some further common examples are:
- Any person that leases equipment (be it coffee machines, trucks or photocopiers) for long or short term.
- Any business where goods are supplied in a raw state to another party, on the basis that those goods will be processed into a finished product and then returned to or sold on behalf of the owner.
- Any person who gives a vehicle to a car dealer, on the basis that the dealer will sell the car on behalf of the owner (rather than buying the vehicles from the owner and then selling them).
- An artist supplying art works to a gallery, on the basis that the gallery will sell the works for the artist on a commission basis.
In any of these situations a deemed security interest could be created and failure to register your interest might mean that a receiver is able to sell your goods without paying you for them.
What should you do?
Talk to us to discover if your goods are at risk. We can amend or draft new terms of trade or leases to allow you to register a charge on the PPSR to protect your potential deemed security. We can also advise you as to how to register your charges on the PPSR and the correct wording that you should use.
Copyright © Cavell Leitch. All rights reserved. Redistribution is only permitted with express written permission. For enquiries please contact us. This article by its nature cannot be comprehensive and cannot be relied on by clients as advice. It is provided to assist clients to identify legal issues on which they should seek legal advice. Please consult the professional staff of Cavell Leitch for advice specific to your situation.