Agribusiness and the Personal Property Securities Act
“In this issue of the F-Troupe we examine the interaction between the Personal Property Securities Act (PPSA) and those involved in agribusiness.” Todd Kelly, Partner
All of the following agribusiness activities have PPSA consequences that may put your clients within that sector at risk:
- Selling or buying livestock, wool, timber, harvested produce, feed, fertiliser, crops, or nursery trees
- Leasing, bailing, or otherwise hiring out of stud or breeding cattle, horses, or other animals
- Selling or leasing or purchasing farm machinery, irrigation, or other equipment, including where your agribusiness client may have other businesses (e.g. an earthmoving business on the side)
- Selling any products (including grain or other goods) on credit or retention of title terms
- Agistment of livestock (e.g. breeders on a long term agistment).
Agribusiness benefits from an extra priority that applies to security interests (such as retention of title terms) taken when supplying goods which assist with development of livestock (such as feed or hormones for cattle), or improvement and growth of crops (such as seed, fertiliser and pest control). This applies provided the crops are planted or the livestock is acquired within six months from entering into the agreement.
Provided your client registers their security interest correctly on the Personal Property Securities Register (PPSR), they can get extra priority over other security interests in the resulting crop or livestock.
Therefore, if properly registered, your client on the liquidation of a customer would be entitled to:
- Recover any remaining stock that they had supplied to that customer
- In the case of crops or livestock, if the goods supplied (such as a supply of fertiliser or animal feed) is used by the purchaser to grow or develop its crops or livestock, your client also gets a special agricultural priority (ahead of other security interests) in the crop or livestock itself.
Other benefits of the PPSA to agribusiness
If buying goods:
- Your client can search to make sure that no one else has a claim against the goods – a bank could repossess your client’s new tractor because the person they bought it off still owed the bank money.
If selling goods:
- Your client can protect their right to take back their goods if the purchaser defaults
- Your client can ‘trace’ their goods, even if they have been mixed together with someone else’s (e.g. grain in silos), sold, or combined into something else (e.g. wool into clothing)
- It helps to stop someone else with a security interest from taking the benefit of your client’s hard work
- If your client has provided products to help grow crops, later mortgages over land will sit behind your client’s interest in the crop.
If seeking finance:
- Your client’s financier can take a security interest against your client’s crops/livestock – improved collateral position = improved loan conditions.
If buying land:
- Your client can search to see if anyone has a claim against the crop that your client may think that they are buying into.
Example - Crops
- • If your client supplies produce to a warehouse/silo, a PPSR registration will help protect your client’s produce, regardless as to whether it is mixed with other peoples’, combined into a new good, or onsold (prior to the PPSA this was not possible)
• If your client’s produce is mixed with others (who are also secured) and a shortfall occurs, your client shares the loss in proportion to their total claim – no first in time rule, but better than someone else taking the produce that may very well have been provided by your client
• If your client sells its product on credit terms, a Purchase Money Security Interest (PMSI) will protect your client’s interest in the produce until they are paid, even above another secured creditor (eg a bank).
Example – Livestock
- If your client supplies cattle to a feedlot and the agreement is that the feedlot buys the cattle at the end of the feeding period, a PMSI will better protect your client’s interest in those cattle
- If your client provides stud services, if that creates a PPS lease, they need to have a registered security interest to protect their interest in the stud animal
- If your client sells to an abattoir, a registered security interest will protect your client’s interest in both the animal, the carcass, and any products created therein and any proceeds (e.g. tracing to the debtor). The practical difficulty in this is that a big organisation may not agree to allow a security interest to be registered by your client against it.
Example – Agistment
- If your client has breeding cattle and agists those breeders for more than two years, a PPS lease is likely to arise (pre-May 2017 a PPS lease arose immediately if the agistment was for an indefinite period). If your client fails to register correctly on the PPSR your client may lose their breeding stock if the landowner goes broke
- If your client is having someone agist cattle on their land, a registered security interest will protect the fees being charged by your client against the cattle..
Please contact Todd, Mitchell or Ben should you have any questions regarding personal or corporate restructuring and/or insolvency. Please take us up on our offer of a free initial consultation