A change crept into the landscape governing the practice of insolvency this year.
A CHANGE crept into the landscape governing the practice of insolvency this year. One could almost say it tiptoed in, because considering the impact it will have on the practice of insolvency, awareness among those whom it will affect appears to be low – anecdotally at least.
PPSA – the Personal Properties Security Act – came into effect February 1, replacing a number of previous registers, including the ASIC Charges Register.
For the first time, it offers statutory protection for creditors who register their interests on a central government database.
This superficially simple piece of legislation represents the biggest change to the way insolvency is practised since the change to the Corporations Act in 1993, which brought into existence the voluntary administration procedure.
The intent of the Act is to make the process of registration and ascertaining the priority between securities, simpler and easier for all and to provide a greater degree of protection for creditors.
The Act covers all kinds of personal property, and a greater range of securities than the previous diverse legislative scheme.
There is now a statutory right for certain creditors (who previously did not have to register, namely suppliers of goods with retention of title clauses) to trace the proceeds of the sale of their goods into a company’s bank account. That right previously existed under their documentation though it was, at best, a toothless tiger.
This statutory right appears to give far better protection to creditors. Before, if a liquidator discovered money in the bank account he was relatively certain he could use it. Not now as there could be any number of people claiming it with a stronger position (to the detriment of liquidators and administration) than before.
Now the rules of the game have changed.
The creditor (who now asserts an interest in goods in the possession of another, generally its customer) registers on new central database to become a secured creditor.
The system is voluntary and the obligation lies totally with the credit supplier to register. If they choose not to, they will lose the rights they bargain for and what remedies the Act gives them and become an ordinary, unsecured creditor.
If a company in say, liquidation, has possession of property cover by the Act but creditors have not registered an interest, it is the company’s asset. In that scenario, possession has become more than nine-tenths of the law.
For those involved in insolvencies in companies it simplifies the process.
Liquidators will now be able to find money in a company account at the time of their appointment.
They will be able to do a search and make an informed choice about whether or not to take on the case.
The position of creditors who bother to register is vastly improved. It includes the right to repossess the property and trace the proceeds of the property if the debt is outstanding.
For example there was never previous need to register retention of title clause or lease agreements.
However the biggest impact is that failure to register interest means there is no guarantee of being able to regain an asset, even if ownership is not in doubt.
We know anecdotally at least that many organisations that should be registering their interest are not.
Given the novelty of the Act, we do not know as yet the size of impact and in the case of insolvency, attempting to address such matters retrospectively is akin to watching the horse gallop into the sunset while swinging on an open gate.
The supply of goods on credit is a very large industry in Australia and this change will have far reaching implications for those on both sides of the process.
Unfortunately, companies go under every day. The Act is a solid, decent piece of legislation, which should fulfill the intent with which it was drafted – namely to give certainty and efficiency to the provision of credit.
• Lee Christensen is a partner, insolvency/commercial litigation with Gadens Lawyers.