Establishing and operating a business is costly and time-consuming, so it’s no surprise that some areas of the business are neglected. All too often, we see businesses spending significant amounts on securing leases (with bank guarantees) and investing in expensive fit-outs but then dealing with their clients using terms and conditions downloaded from the internet. This can lead to logistical and financial difficulties down the track. One of the most common things missing or lacking in these standard contracts is also the most important: security for payment.

Surprisingly, some businesses that specialise in providing goods to clients do not have adequate protection that takes into account the Personal Property Securities Act 2009 (Cth). Even when businesses do have these clauses, most do not take the necessary additional step of registering a security interest on the Personal Property Security Register. Even worse, we have seen instances of deficiencies in the registration of a security interest such that the security put in place is practically worthless. A comprehensive understanding of the Personal Property Security Register is a must when providing goods to clients on credit.

Some businesses do not even have a basic retention of title clause (which vests title in the goods to clients only after full payment has been received) or a guarantor clause (which obligates an individual to make payment if the client entity, usually a company, does not).

The absence of appropriate security has many adverse consequences including a lack of leverage to demand payment once the goods have been delivered or when substantial work has commenced, and an inability to recover the balance of the purchase price if the client entity becomes bankrupt or insolvent.

For more information on security terms, contracts and commercial law in general please contact Shavin Silva at Pace Lawyers on (08) 8410 9294 or email him directly at s.silva@pacelawyers.com.