Is your old Retention of Title clause good enough?

Posted on.
By Watkins Tapsell.

You may have heard about this thing called the Personal Property Securities Register (PPSR) but at the same time thought “I don’t need to register, I’ve already got a Retention of Title clause in all my documents. That’s good enough isn’t it?”

The short and quick answer to this is NO! Here’s why:

Luke manufactures sporting goods and supplies to quite a few different sports retailers one of them being ‘Jim’s Warehouse’ (JW). JW has a contract with Luke and the Terms & Conditions state that JW will pay Luke within 30 days of the end of the month in which the tax invoice is issued. These Terms & Conditions have been in place since 2009 and have been working well between the parties.

They include your standard Retention of Title clause. In early 2010, JW fails to pay an account within the allowed time and ignores Luke’s letters requiring immediate payment. Luke arranges to go into JW’s premises and he collects his sporting goods which are the value of the outstanding debt. For the rest of 2010, Luke continues supplying to JW but on a cash on delivery basis. Their business relationship goes along well and in January 2011 Luke agrees to let JW go back onto the 30 day payment plan. JW signs the Terms & Conditions including the Retention of Title clause.

In March 2012, Luke’s mate, Jeff, who manufactures and sells fasteners, tells him down at the pub at Friday afternoon drinks that he has just seen his lawyer and redone all of his Terms & Conditions to allow him to register an interest on the PPSR for all of his customers that are on payment plans like JW’s. Jeff tells Luke that he should do the same thing as his lawyer has told him if he doesn’t, he won’t be able to get his goods back if his customer goes under and has not paid. Luke has a think about it but decides he doesn’t want to go to the expense right now, and besides he has his Retention of Title clause and that has always worked in the past.

In April 2012, Luke delivers $20,000 worth of goods to JW and in May 2012 JW fails to pay their invoice. Luke sends his usual debt recovery letters but they are ignored. He discovers that JW has had receivers and managers appointed and is no longer trading. He writes to the receivers and managers and sends them a copy of his Terms & Conditions and agreement with JW and demands that they return his goods pursuant to his Retention of Title clause. The receivers and managers write back and say that because he hasn’t registered on the PPSR and there are other creditors who have registered their interest over all of the assets of JW on the PPSR, they will have priority over the goods and the proceeds of any sale of those goods. The receivers and managers sell what goods are left in JW’s premises, including the goods supplied by Luke, and the proceeds of sale don’t even cover what is owed to the creditors who have registered on the PPSR. The registered creditors share the proceeds of sale and Luke gets nothing.

If Luke had the proper agreements in place and had registered his interest properly on the PPSR he would have had security and recovered at least part of the money owed to him. Instead he is now out of pocket $20,000.

Don’t rely on your old Retention of Title clauses and lose out like Luke. Update your Terms & Conditions and then make sure you are registering your interests on the PPSR.

For further information contact our Commercial Business & Property Team

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