Recently I was presented with an email chain with the following sequence of events:
1. One of the major banks – corporate accounts department, wrote to a substantial client notifying them that they had done a PPSA search on them and found a PPSA registration on the client.
2. They then asked if they could call the supplier and have it removed.
3. The Clients CFO wrote to the operations manager telling him to tell the supplier to remove the PPSA registration if they want to continue to do business with them
4. The supplier removed the PPSA registration as the customer represented a high percentage of their business and they could not afford to lose it.
Let’s look at the ramifications.
1. The PPSA registration meant the supplier has the best chance to get paid if the customer goes into liquidation and prevents the supplier from being subject to preferential payment claw back.
2. The PPSA is only valid for the amount outstanding at the time of liquidation.
3. The bank wants it removed because:
a) It allows them to lend more as there are no official securities against their client
b) By removing all PPSA registrations before lending any monies it puts them as the number one secured creditor if their client goes into liquidation.
My take on the situation is:
a) the bank has used undue and unfair influence on their client
b) The bank is not acting responsibly if they are lending money based on no official securities, as the liability still exists it is just not registered.
c) The banks client is acting without due care to their supplier and directly against the supplier’s interest in order to appease the bank and possibly to facilitate additional funds.
d) The supplier is being bullied by their client and may one day be a victim of non-payment and preferential payment clawback
My questions are:
a) When will this stop?
b) When will the government put teeth into unfair trading?
c) When will banks really start working ethically?
d) When will businesses start to understand your supplier using the PPSA registration system means security of supply.
Having a supplier lodge a PPSA registration basically means three things, your supplier has the best chance to get paid if you go bust and they cannot be subject to preferential payment clawback and really important they are in the right order to be paid.
That order is determined by date of registration not by who is owed the most or by who has bullied there way to the top of the pile.
Using the PPSA system means your supplier is protecting their livelihood which means they will be there when you need them both now and in the future.
With an average of around 700 liquidations a month in Australia you need to be using the PPSA to protect your business.
We need to get this right in our business environment otherwise we are building our economy on false realities.
An economy built this way is like a house of cards once one business goes it drags everything else in the chain down with it.
I welcome your comments.