PPSA - What Does It Mean For Farmers?
Facing the challenges of Mother Nature, from drought to flooding rain is nothing new to Australian farmers! A less common but very real risk however, is faced by farmers when selling their crops on credit terms. When a farmer sells their grain on credit and the buyer runs into financial hardship, the farmer can face loss of payment for his crop and for many farmers and their families this can mean the loss of their primary income for the year.
There have been several insolvencies involving large grain buyers in the last few years, which have resulted in significant financial losses to farmers and history has shown that farmers as unsecured creditors are at significant risk of not getting much back.
However in the new world of PPSA things are looking up. There are new ways to manage these risks which farmers should make themselves aware of. Farmers, who are very familiar with managing harsh natural conditions, are often not taking precautions to improve their position should a grain buyer fall into financial hardship.
The PPSA caused an overhaul of the existing system for taking and granting security over personal property. 'Personal property' includes grain. Under the Personal Property Securities Act 2009, Famers have an opportunity to ensure the terms of their contract provide for a security interest in their favour. With appropriate registration of that security interest, a farmer can be elevated to secured creditor as opposed to an unsecured creditor. For example when a person buys a motor vehicle which is subject to finance, they are asked by the financier to grant them a security interest in the vehicle. The financier will then register the security interest on the Personal Property Securities register and obtain rights as a secured creditor.
A secured party with a properly registered security interest can rank as a secured creditor in an insolvency scenario. However a farmer, who could be a secured party but has not perfected registration of an existing security interest, will be an unsecured creditor. Even secured creditors will forego payment of their debts (in part or in whole) in some insolvency cases but if our clients had to choose between waiting with other unsecured creditors or lining up with the banks we know where you would rather be.
If you would like to know more about the information presented in this article, please contact either our Young or Grenfell office, to discuss your unique circumstances.
(This article is not intended as advice for your particular situation).