The Personal Property Securities Register (PPSR) of 2002 brought a whole new opportunity for business owners or creditors. A chance to be paid in full before other creditors, which is an amazing benefit, however, there is a downside if you do not utilise this opportunity and sit as a default unsecured creditor.
Something that is not widely known is a liquidator’s right to challenge money back off businesses who sit as default unsecured creditors (voidable transactions) when they are paid from a client up to 6 months before they enter into liquidation (sometimes two years). That’s right, a client can pay you and then months later, you can receive a letter from a liquidator asking you to pay the money back. This is because of the chance that the unsecured creditor would receive more money than they would in the normal liquidation process, therefore making it unfair for other creditors who are secured and have utilised the PPSR. There is a valid and just cause; to stop businesses from paying out associates, friends or companies that have a personal guarantee before insolvency and to allow funds to be distributed among creditors more fairly when liquidations happen.
Like all things, there are positives and negatives to this situation. Liquidations are now handled far more ethically as there is no way for creditors to get lucky and get payment due to the timing of the invoice. However, if you are an unsecured creditor, you will most likely not get paid much, if at all, and are exposed to having the money you have already been paid challenged.
It is about having up-to-date business documentation and PPS Registrations in place with your commercial clients to ensure you get paid for your work but also aren’t open to having recently paid invoices challenged by a liquidator. Never before the introduction of the PPSR have business owners had this opportunity. Beforehand there was no way to secure your invoice value in the event of insolvency, so this should be approached as a positive, and it comes down to a simple saying with the PPSR, “use it or lose it”.
