Reten­tion of Title under the PPSA

The com­mence­ment of the Per­son­al Prop­er­ty Secu­ri­ty Act 2009 (PPSA) on 30 Jan­u­ary 2012 has sig­nif­i­cant impli­ca­tions on the busi­ness under­tak­ings of many Aus­tralian indus­tries, espe­cial­ly those who reg­u­lar­ly sup­ply goods on reten­tion of title (ROT) terms.

An ROT clause, also referred to as a Roma­l­pa’ clause, is often used by sup­pli­ers to hold own­er­ship of, or title to, goods until the buy­er has paid for the goods in full.

Pre­vi­ous­ly, ROT claus­es were recog­nised at law and did not require reg­is­tra­tion – indeed reg­is­tra­tion was not pos­si­ble. Sup­pli­ers of goods sup­plied under an effec­tive ROT clause were able to recov­er goods not yet paid for upon the insol­ven­cy of the par­ty in pos­ses­sion of the ROT goods.

How­ev­er, under new PPSA laws things are dif­fer­ent. Sup­pli­ers and oth­er ben­e­fi­cia­ries of ROT claus­es will need to reg­is­ter their inter­est, known as their secu­ri­ty inter­est, in goods sup­plied to ensure that their ROT clause remains enforce­able against, and con­tin­ues to have pri­or­i­ty over, oth­er inter­ests as intended.

The secu­ri­ty inter­est aris­ing from an ROT arrange­ment is referred to, in PPSA ter­mi­nol­o­gy, as a pur­chase mon­ey secu­ri­ty inter­est’ (PMSI). The impor­tance of this type of secu­ri­ty inter­est is that if duly reg­is­tered with­in the leg­is­lat­ed time­frames, it gen­er­al­ly has a super pri­or­i­ty’ against oth­er inter­ests in a vari­ety of cir­cum­stances. For instance, a sup­pli­er who has a duly reg­is­tered PMSI can poten­tial­ly have pri­or­i­ty over even pre­vi­ous­ly reg­is­tered secu­ri­ty interests.

A fail­ure to reg­is­ter an ROT arrange­ment as a PMSI does not ren­der it inef­fec­tive, but it means it will not enjoy super pri­or­i­ty against oth­er interests.

That is not to say that all ROT sup­pli­ers should nec­es­sar­i­ly try to reg­is­ter all of their ROT arrange­ments as PMSIs. Instead, ROT sup­pli­ers will need to con­sid­er care­ful­ly the ben­e­fits of reg­is­tra­tion against the nature and mag­ni­tude of the risk that the ROT arrange­ment is intend­ed to address and their rela­tion­ship with their cus­tomers, as well as the bur­den, and cost of reg­is­tra­tion. In the mean­time, ROT arrange­ments that were on foot as at 30 Jan­u­ary 2012 enjoy lim­it­ed tran­si­tion­al pro­tec­tion while sup­pli­ers work out their reg­is­tra­tion approach.

Our PPSA team is here to help you to under­stand the new régime, its impact on your busi­ness and the things you need to con­sid­er in deter­min­ing your reg­is­tra­tion approach and strategy.