Effective Terms Of Trade - Staying Out Of The Unsecured Pack.

In the current economic downturn, it is worth reviewing your current terms of trade, especially if you use retention of title clauses (also known as Romalpa clauses) to retain title to goods that are sold on credit.

Prior to the introduction of the Personal Property Securities Act 1999 (PPSA), suppliers who reserved their title to goods continued to retain ownership of the goods until the buyer paid for the goods in full. However under the PPSA further steps must be taken to ensure suppliers retain priority to the goods supplied.

In particular, a written agreement signed by the customer containing your retention of title is required (with limited exceptions). Also, to be in the best priority position against third parties, suppliers must 'perfect' their security interests by registering on the Personal Property Securities Register (PPSR).

A security interest registered in relation to inventory or equipment supplied to a buyer is an example of a Purchase Money Security Interest (PMSI). A PMSI is a security interest which secures the buyer's obligation to pay the purchase price for goods supplied. It can also provide a 'super-priority' to suppliers. If you are supplying inventory, you must register a PMSI before the buyer takes possession of the inventory. However, if you are supplying equipment, you must register a PMSI within 10 working days of the buyer taking possession of the equipment. If a PMSI is registered within these timeframes, it will take priority over all other security interests (including general security agreements registered by the buyer's bank) even if the other security interest was registered first.

If you fail to register your security interest, you run the risk of your security interest being defeated by a third party who has registered their interest on the PPSR for the same goods or if the goods are sold to a third party. If a third party does register an interest in the same goods, and you have not registered your interest, the registered third party will have the right to take the goods you have supplied to satisfy their debt ahead of you. This is the case even if you still have title to those goods.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further -- by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

Ms Tameela Bandara

DLA Phillips Fox

140 William Street

Melbourne

Victoria 3000

AUSTRALIA

Tel: [phone]

Fax: [phone]

E-mail: [e-mail]

URL: www.dlaphillipsfox.com

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