Protecting your Interests in the Supply of Materials Using the Personal Property Securities Act 2009 (Cth)
If you are involved in the supply of materials, whether plant, equipment or other building materials, whether by way of sale or hire, in the building and construction industry you should be aware of the operation and effect of the Personal Property Securities Act 2009 (Cth) (PPSA), which can help protect your interests in the event of the insolvency of the party to whom you supply materials.
Suppliers now have registerable security interests in the personal property that they supply to customers on a retention of title basis. Supply of materials on a ‘retention of title’ basis means that the seller retains legal ownership in the goods (even after delivery to the purchaser) until payment in full is received.
Any equipment leases or hiring agreements which fall within the definition of a PPS Lease and create a security interest should be registered in order to give a lessor protection against other secured creditors and on insolvency. A “PPS lease” is a lease of personal property for a term exceeding 12 months (or 90 days in the case of motor vehicles, boats or aircrafts).
Using the PPSA, it is possible to register a security interest on the Personal Property Securities Register (PPSR), which has been established under the PPSA to provide a single, national database of all personal property security interests. A security interest in relation to materials supplied to either owners or builders at a building site may be registered, provided that the item:
meets the definition of personal property under the PPSA; and
constitutes a PPS lease or is supplied on a retention of title basis.
In the event of insolvency by either the owner or the builder:
where payment for the materials sold on a retention of title basis remains outstanding, the registered security interest helps preserve your rights in relation to the uninstalled materials or their proceeds; and
in the case of goods hired and in the owner or builder’s possession, the registered security interest helps identify your goods as your own and establish your entitlement to repossess them.
If you fail to register your security interest in relation to supplied materials on the PPSR, you may lose your entitlement to payment for, or recovery of, the materials even if you still own them. This is particularly important given that the Domestic Building Contracts Act 1995 (Vic) prohibits a builder from putting a caveat on the title of the building site land to protect such interests in materials. Failure to register your security interest can result in possession trumping ownership.
It is helpful if a contract for the supply of materials states that the contract constitutes a security agreement for the purposes of the PPSA and creates a security interest in the items supplied and to be supplied in the future. This security interest should then be registered on the PPSR.
It is extremely important that the registration process of a security interest on the PPSR is completed correctly and within time, being before the end of 15 business days after the day the customer obtains possession of the materials. The consequences of failing to properly register a security interest can render a registration, and the related security interest, invalid.
It is crucial that businesses update their processes and documentation to best utilise the protection offered under the PPSA, or risk losing the right to claim back or enforce interests in relation to materials supplied to a party in the event of that party’s insolvency.
If you have not done so you should update contracts for the supply of materials to ensure that your business is in the best position to claim back or enforce interests in relation to materials supplied in the building and construction industry. We can readily assist you with this process and provide all relevant clauses.
For further information please contact:
Richard Anderson
Principal
Accredited Specialist in Commercial Litigation Law
03 5226 8524
randerson@harwoodandreews.com.au