First published on Smart Company. 

It is a sobering reality that as Australia starts to come out of the COVID-19 pandemic, many businesses in the supply chain are likely to fail and cause a domino reaction with their contacts. You need to set yourself up now to put yourself in the best position possible to recover your funds and keep your business in a steady cash flow.

This article looks at three strategies to put you in the best position to protect your business.

1. Review your contracts

Have you registered all security interests granted under the contract?

Be aware of the Personal Properties Securities Act – seek legal advice as to whether you are able to register your interest on the Personal Properties Securities Register (“PPSR”) and ensure it is done correctly and as soon as possible.

If your customer enters into liquidation and your registration on the PPSR is valid, you may become a secured creditor and be paid ahead of unsecured creditors.

Ensure that your PPSR interest is registered over the correct entity – in many cases if you are dealing with a trading trust, you need to be careful that you are securing the trust’s property and not just the assets of the corporate trustee. This is because a corporate trustee often does not have any assets of its own. It is a common mistake to register a security interest over only the corporate trustee and not on the ABN of the trust.

If you are dealing with only a company (which is not a trustee of a trust) you should register on the PPSR under the company’s ACN.

2. Take personal guarantees where possible

Personal guarantee

Ask for a personal guarantee from the director (if you are dealing with a corporate entity) and perform a property search to see if the director owns any property in their personal name. This allows you to seek payment from the director personally if an administrator or liquidator is appointed to the corporate entity.

3. Review and update your terms and conditions

a) What are your trading terms?

  • Start enforcing your trading terms.
  • Consider providing less (or no) credit to high risk customers.

b) Check for default interest.

  • Is there interest payable upon default and if so, what is the interest rate applicable? If you do not set this out in your T & C’s you may not be able to charge interest on overdue invoices.

c) Update to include clauses to allow you to take security and personal guarantees.

Lessons

A little cost upfront to obtain good advice regarding the best strategies to get paid will put you in the best position in 2021.

 

About the Author

Catherine Ballantyne

Special Counsel
A business disputes specialist, Catherine is a trusted advisor to businesses and individuals in obtaining successful outcomes. Businesses rely on Catherine as a trusted advisor as well as lawyer in guiding them through complex litigation and disputes.

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