June 5, 2014.

PPSA Review Secretariat,

Commercial & Administrative Law Branch,

Attorney-General’s Department

3-5 national Circuit

BARTON ACT 2600

By e-mail:

Electaserv Trading Submission to the PPSA Review Secretariat

Electaserv is a medium sized business that operates in the hardware industry as an importer & wholesaler, supplying products, under our own brands, including power tools and accessories, machinery, hand tools, household cleaning products, wheelie bins, storage items, coolers and general hardware.

We have attempted to inform ourselves about the regime, but opportunities for education, especially before the Act commenced where very limited and, we found, not well publicised. We found out quite by accident. As the impacts of the Act have begun to be felt, there has been a little more information available. This information is very general and to obtain specific information, legal advice has to be sought, at a cost.

At a recent webinar put on by CCIQ (Chamber of Commerce & Industry Queensland), it was put forward that:

a.  “The PPSR regime has changed the ROT (retention of title) function. Now, in the event of an Administration or Liquidation, the PPSA has removed ownership as the paramount right in the event of insolvency, so insolvency administrators can treat all assets in the possession or control of a company in financial distress as the assets of the company regardless of who owns them unless the owners’ rights have been registered on the PPSR.” Our experience certainly confirms this.

b.  “This regime is designed ……. to give people ……. the opportunity to ensure that their interest is protected and the world placed on notice that that interest exists. It is designed to provide people & businesses with the opportunity to protect what they have….” Our experience is that this is not what is actually happening.

Our experience as an SME under this regime has been:

1.  Terminology used in the Act makes it vital to seek legal advice which is costly. There is also the need to seek this advice from legal practitioners who understand the PPSA regime. This is usually the larger legal businesses who charge higher prices.

2.  Terms and Conditions of Sale / Account Contracts can no longer be done in house for SME’s as legal advice needs to be sought in the writing of these so that the PPSR is covered and will be upheld by Administrators/Liquidators. The company spent a significant amount of time and money getting our Terms of Trade reviewed on the introduction of the Act only to be told recently that they need to be strengthened even more now that the impact of the Act is being seen.

3.  Legal advice is also required to determine what sort of registration is required eg all monies or ROT.

  1. Our experience is that if you choose to register a PSMI for inventory, to cover ROT, Administrator and/or Liquidators require you to prove that the particular products on hand with your failed business customer are exactly the same products that are still unpaid. This can be easily done if all the products that a business sells have serial numbers, but impossible to do if the business sells hammers, brooms, storage containers, food and the like. The effect has been that the PPSR registration and ROT have no standing with Administrator and/or Liquidators. Even owing the Brand name and being the sole distributor of these products holds no sway with Administrator and/or Liquidators. We were advised to take out this type of security interest and it has proved ineffective.
  2. If you choose to register an “all monies’ security, customers are very reluctant to sign. You then have to make a choice between having very few customers or no security, registered or not.
  3. One of the suggestions we have received from legal practitioners is to list all of our products as collateral. With over 1,500 products, this is simply impractical and would not address the issue raised in 3(a) above.

4.  With the ever shrinking number of players in the market, large businesses set the rules for smaller businesses to follow. All of our national / large customers have their own trading terms which we have to abide by if we want to deal with them. They will not sign our Terms of Trade. If we don’t deal with them, there are fewer and fewer other customers we can deal with. Large businesses tend to have a clause in their trading terms stating that we cannot register a security interest in the Goods under the PPSA.

This company has spent time and money attempting to protect our interests in the event of a business customer failing, but it all seems to have been a waste, as in effect, the company now has less security than it did before this regime came into existence.

Prepared by: Clare Walsh-Clark