The country’s only rural insolvency specialist is warning that vehicle and machinery dealers – and other suppliers of goods to rural customers – could face significant financial loss as pastoral and agricultural businesses continue to collapse in the current economic climate.
Dennis Wood of rural insolvency and investigations firm, Act Three, says there have been painful and expensive side effects for third parties in every insolvency scenario he has encountered.
He says that many farm stock, equipment and supplement suppliers are unaware that their customer might be a failing business. And they generally overlook – or leave it too late – to register their interest on the Personal Property Security Register.
In one case Wood worked on, a tractor supplier sold a tractor to an avocado orchardist who paid a deposit and agreed to a payment plan. But the dealer failed to register a security interest over the tractor.
Subsequently, the orchardist was placed in receivership owing millions to a lender. The secured lender to the orchard had a general security agreement (GSA) over all of the orchardist’s property – thanks to a financing statement that was properly registered under the PPSA by the lender.
The GSA holder took possession of the tractor. The dealer was left with nothing.
Wood says the general rule in insolvency is that provided the supplier has registered a financing statement within 10 days of supply, the supplier has first right to repossess the equipment.
If the supplier registers late it is likely the farmer’s banker will have first right – and the supplier will miss out.
Wood says there are various legal and technical variations which can affect the outcome regarding ownership of property in the event of a business failure.
“Generally,” he says,“Title has no effect – security registration counts for everything.”
The Personal Property Security Act 1999 (PPSA) covers supply, lease or consignment of goods, livestock or product on credit or lease.
The Act requires the supplier’s interest in property supplied on credit or payment terms to be registered to enable recovery of the goods should the client go to the wall.
If the supplier does not register a security interest, he will lose his equity in the goods. That’s because the customer’s bank will be deemed to have a priority security interest.
Wood says sellers need to consider the purchaser’s credit background and reputation, the transaction’s value, and the amount of the deposit.
A “retention of title” clause in a contract will not protect a seller’s interest over a competing registered security interest unless a financing statement is registered within ten days of supply.
