With harvest just around the corner and in light of the current economic climate, it is now more important than ever for growers to consider using the Personal Property Securities Register (PPSR) to protect their interests when selling crops.
Real life risks for growers
Earlier this year, a Chinese based cotton trading company went into voluntary administration, leaving Australian cotton growers potentially millions of dollars out of pocket.
Similarly, several Australian based grain traders have collapsed over the last couple of years, leaving growers and the grain industry owed millions of dollars in unpaid debts for grain.
This spate of insolvencies highlights the risks that Australian growers face when selling their crops.
I am selling grain: How can the PPSR protect me?
The PPSR is a national online public register where all security interests held over personal property are registered to maintain their priority over competing interests from third parties. Personal property includes crops, farm machinery and livestock.
Take the example of a grain grower who contracts to sell 400 tonnes of barley to a buyer at $250 per tonne. The terms of the contract provide that payment will be made 30 days after the buyer takes possession of the grain. By delivering the grain to the buyer prior to receiving full payment, the grower exposes itself to substantial risk. The grower no longer has control over the grain because it is now in the buyer’s possession. There is a risk that the buyer may become insolvent prior to making full payment to the grower.
By registering a security interest over the value of the grain ($100,000) on the PPSR, the grower as the ‘Secured Party’ secures its interest in the grain. The buyer as the ‘Grantor’ is bound to pay the value of the grain. Should the buyer become insolvent prior to full payment being made, the grower becomes a secured creditor and takes priority over any unsecured creditors when the liquidator comes to paying out creditors.
If the grower does not register a security interest and the buyer becomes insolvent, the grower is deemed an unsecured creditor and is likely to recover little or nothing.
How do I register my security interest with the PPSR?
A grower’s security interest needs to be documented in a ‘security agreement’ with the buyer before it can be registered with the PPSR. A security agreement can either be a separate document or a clause contained within the contract with the buyer.
You can then register your security interest with the PPSR by paying a small fee of less than $10 and completing the online registration within the required timeframe.
The recent collapse of cotton and grain traders is a stark reminder that the cost of registering on the PPSR is worth every cent.
For more information or for advice on PPSR registration please contact a member of our commercial team.