How to use the PPSR to protect your business in the COVID-19 aftermath

Most government stimulus packages, such as JobKeeper, are due to end on March 28, 2021, but it’s impossible to predict if they will be extended and for how long.

If they do end in March as intended, businesses will suddenly be required to pay employee salaries, suppliers, overhead costs — all without assistance.

Many businesses are trading on the brink of insolvency without a turnaround plan. Zombie companies that have been artificially propped up by stimulus packages will fall over.

As a supplier or creditor, if your customers enter administration with your stock on hand, you’d likely lose your goods or payment without the Personal Property Securities Register (PPSR) in place.

Registering on the PPSR is crucial for manufacturers, wholesalers, any business supplying goods based on retention of title, and companies providing finance to other businesses.

With the expected rise of insolvencies in mid-2021 and beyond, the PPSR is an important way to protect your business from the flow-on effects of your customers’ defaults.

Why register now?

As of January 1, 2021, statutory demands have reverted to pre-COVID-19 positions, ceasing the relief that commenced on March 25, 2020. The only exceptions are businesses that have declared their eligibility for temporary restructuring relief.

This means:

• The statutory minimum has changed from $20,000 back to $2,000; and
• The statutory period to respond to the demand has changed from six months back to 21 days after the date of service of the statutory demand.

So, if a customer has an outstanding debt of at least $2,000, suppliers can issue a statutory demand and consider commencing winding up proceedings if the debt is not paid within 21 days. This means more and more businesses will be entering administration this year — your customers included.

Knowing what you should do and knowing how to do it are two sides of the same PPSA coin.

To help your business further, you can also obtain a free PPSA LEDcheck of your clause to tell you if it is lacking in any way or could be improved.

Warning signs your customers may be in financial distress

Start watching out for red flags that businesses are at risk of falling over once government stimulus ends.

For example, your customers might:

• Slow down their payment habits, such as requesting extensions and reducing the quantity and/or frequency of their transactions;
• Act evasive when you try to contact them; or
• Take up accounts with your competitors (you can tell this is happening if you start getting trade reference calls from their potential suppliers).

Not sure if it’s worth the extra cost to register on the PPSR?

The economy in the next 12-18 months will continue to be unpredictable as government assistance tapers off.

In this volatile climate, the key to survival is to have as much protection in place as possible.

If one of your larger clients falls over, the PPSR will help you recover your stock and pay itself back.

A cost-versus-benefit analysis will show that registering on the PPSR could be the key to saving your business.