Romalpa Clauses Don’t Work Anymore – Unless!

Under the Personal Property Securities Act (PPSA), a ‘Retention of Title Clause’ (Romalpa) is no longer effective in itself against a third party claim. This means that, if you supply goods on a ‘Retention of Title’ basis but don’t have a signed ‘Terms of Trade’ agreement and ‘financing statement’ that signified that you’ve registered a ‘security interest’ on the Personal Property Securities Register (PPSR), the supplier of the goods or service will lose out if a receiver or liquidator is appointed over the debtor and there are insufficient funds to pay all creditors.

To be effective, ‘Retention of Title’ agreements and ‘Terms of Trade’ agreements need to have been drafted after 31 January 2012, which is the date from which the PPSA commenced operations.

An experienced liquidator has made the following comment:

“As an insolvency practitioner, quite often we are faced with suppliers who have retention of title clauses (Romalpa) in place, but are not aware of the changes in the security regime effective in January 2012. This lack of awareness amazes me and is predominant amongst small businesses. Unfortunately the business owner generally finds out the hard way, when faced with an insolvency practitioner who tells them that they no longer have the title and/or ownership of goods.”

– Darren Vardy, Director, SV Partners, Specialist Accountants and Advisers

In the first instance, it’s important that small business operators have a discussion with a commercial solicitor, to ensure the business is utilising appropriate ‘Retention of Title Clauses’ (Romalpa) and ‘Terms of Trade’ that comply with the requirements of the PPSA.

It is then important to ensure an appropriate system has been introduced into the business, to monitor all aspects of the transactions and storage of assets of the business, so the business is in a position to make appropriate, timely decisions, as required under the PPSA, on whether the registration should be made on the PPSR.

There are a lot of misunderstandings on this legislation. Some of them are caused by the term ‘personal property’. Many people believe that ‘personal property’ is not their business’ assets. Under the PPSA, ‘personal property’ is ‘all forms of property other than real estate’, ie, ‘personal property’ includes a vast range of ‘business property’.

Registration on the PPSR is voluntary. This has led many people to believe that it’s not necessary to give consideration to registering transactions on the PPSR. Unfortunately, that assumption is very wrong. Failure to register a significant transaction has the potential to financially ruin a business.

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