KP Carmody & Co

Let’s assume the following scenario:

• After harvest the farmer enters into an agreement with a grain buyer;

• The terms of the agreement may or may not include a ‘retention of title’ clause/granting of a security interest to the farmer;

• By an unfortunate turn of events, prior to payment, the grain buyer appoints a voluntary administrator pursuant to the Corporations Act.

The Personal Property Securities Act (“PPSA”) came into force from 30 January 2012 and allows for registration of security interests. Personal property includes grain. A grantor grants a security interest to a secured party to secure a debt. For example, if an individual buys a motor vehicle subject to finance, the buyer will probably be asked to grant to the finance company a security interest in the vehicle. The finance company will then register the security interest on the Personal Property Security Register (“PPSR”) and obtain rights as a secured creditor.

Typically a secured party will want to ensure that it has a written security agreement (such as standard terms of trade) which also meets the criteria set out in section 20(2) of the Act in order to ensure enforceability against third parties. The most relevant means of perfection of a secured interest for the farmer is registration of his security interest. This will allow the farmer to rank with secured creditors in the event of a voluntary administrator being appointed for the grain buyer. Importantly for farmers, a security interest which attaches to a harvested crop, will continue even if the grain subsequently becomes co-mingled with other grain owned by others. Normally if registered the farmer’s security interests will take priority over the grain buyer’s financier which has taken a security interest from the grain buyer in ‘all present and after acquired property’ (the old fixed and floating charge).

In conclusion farmers would be well advised to seriously consider registering a security interest in their grain sales. It could end up saving them hundreds of thousands of dollars.

The advice in this article is general in nature and you should consult your solicitor for specific advice