LawTalk Blog

Do you supply goods to customers on credit terms?

commercial law contracts and creditors

If you are a company and you supply goods to customers on credit terms it is important that you review what you are doing to protect yourself in the event that the customer falls behind in payments or enters into liquidation.

You may have heard of a 'retention of title' clause. A retention of title clause is a clause in a contract (for example in a credit application) that is between your company and your customer. The retention of title clause states that the goods that you supply on credit to the customer remain the property of the company until the customer pays for the goods in full. This gives you a security interest in the goods.

It is important that you have a retention of title clause in any credit application that you enter into with customers and that the security interest that you have through the retention of title clause is registered on the Personal Properties Security Register ("PPSR")that came into effect on 30 January 2012. This ensures that you are a secured creditor, rather than an unsecured creditor in the event that the customer you are dealing with goes into liquidation.

The recent decision of Ferguson J of the Supreme Court of Victoria in Central Cleaning Supplies (Aust) Pty Ltd ("Central")v Elkerton [2014] VSC 61 provides a timely reminder that securities need to be registered on the Personal Properties Security Register.

Central was unsuccessful in establishing it had a perfected transitional security interest in equipment supplied to a company in liquidation. The retention of title clause being relied on was included in each invoice sent but was not held to be part of the credit application entered into by the parties. This meant that the liquidators were the owners of the goods at the date of the liquidation and Central became an unsecured creditor and would not have priority in getting payment for the goods.

The problem for Central was that they had not registered their security interest on the PPSR.

The judge held that the retention of title clauses on the invoices was not adequate and that the security interest was required to be registered on the PPSR.

As this had not been done, the equipment and goods became the property of the liquidator.

This case highlights the care which must be taken when drafting credit applications in order to protect the secured creditor in accordance with the provisions of the PPSA and the importance of registering all security interests in goods that you supply by way of credit contract on the PPSR.

Please note, this Blog is posted in Adelaide, South Australia by Andersons Solicitors. It relates to Australian Federal legislation. Andersons Solicitors is a medium sized law firm servicing metropolitan Adelaide and regional South Australia across all areas of law for individuals and businesses.

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