Are your retention of title clauses enforceable?

May 27, 2024

If your business supplies goods on credit to customers, then you need to ensure that your credit terms include enforceable retention of title provisions, and that your retained interest in the goods is registered appropriately.

Retention of title provisions

Generally speaking, a retention of title provision is a clause included in credit terms, sale of goods agreements and/or supply agreements that provides that title in respect of the relevant goods remains with the creditor/seller/supplier until payment in full for the goods is received.

Why should you include retention of title provisions in your credit terms?

By including valid retention of title provisions in your credit terms, you can rely on them to reclaim the goods provided on credit, if the relevant customer fails to pay for the goods in accordance with the agreement or goes into liquidation.

If you are seeking to rely on a retention of title clause however, you will need to ensure that it complies with the provisions of the Personal Property Securities Act 2009 (PPSA).

In particular, you will need to ensure that the retention of title clause is in writing and provided to the customer with the credit application. You also need to ensure that you have “perfected” your interest in the goods by registering that interest on the Personal Property Securities Register (PPSR) in accordance with the PPSR timing rules.

There are other ways to “perfect” an interest, but registration on the PPSR is the most common.

PPSR timing rules

In order for your security interest to maintain priority over the interests of third parties, you will need to comply with strict timeframes within which a security interest must be registered on the PPSR.

For example, if the relevant customer is a company, then you must register your security interest within 20 business days of the security agreement between you and the customer, or (if you register outside the 20 business days timeframe) more than 6 months before the customer becomes insolvent.

If you want to register a ‘Purchase Money Security Interest’ (PMSI), which would give you super -priority over all other registered security interests in the collateral, then you may need to register the security interest before the customer obtains possession of the relevant collateral.

If you fail to register your security interest within the relevant timeframe, or the customer becomes insolvent before you register your security interest on the PPSR, then you may lose your security interest all together.

If you need more information on retention of title provisions, the PPSA or your credit terms more broadly, please contact Denise Wightman, Partner, or Brighid Virtue, Lawyer, to discuss.