Personal Property Securities Act – How Does It Affect Small Businesses?

The following 'newsflash' clearly identifies the issues confronting small businesses on the Personal Property Securities Act (PPSA):  Millions of dollars have already been lost by businesses, both small and large, caused by:
     •    ignorance of the PPSA; and
     •   not registering on the Personal Property Securities Register (PPSR)

As a small business operator, what does this mean to you?

The PPSA represents significant changes to Australian commercial law.  In fact, some people have claimed that this is the most far-reaching business legislation introduced in Australia in the last 200 years.

Undoubtedly, the biggest change is that 'title is no longer king'.  The fact that a business paid for an asset does not mean the business is able to retrieve that asset at any time, unless the business has taken steps to adequately protect its position on the PPSR.

Whilst there is no doubt that the title 'personal property' is misleading, PPSA definitely covers a wide range of business assets.  Under the legislation, 'personal property' is described as "all forms of property other than real estate".

What Should A Business Do In Relation To The PPSA?

There's no doubt that, in the first instance, you should be talking to your commercial solicitor, to ensure the 'Retention of Title' clauses, which you are utilising in your business, have been appropriately drafted after 31 January 2012, to comply with the PPSA.

Businesses also need 'Terms of Trade Agreements' prepared, to comply with the PPSA.  Some businesses will need a number of different types of 'Terms of Trade Agreements', to cover the trading arrangements into which the small business operator has entered with various customers.

However, the drafting of the 'Retention of Title' clauses and the 'Terms of Trade Agreements' are only the beginning.  Unfortunately, many people believe that this is the end of the process.  It is not.  The PPSA is very complicated and, in our opinion, the responsibility then passes on to the small business operator's accountant, to ensure an appropriate system is introduced within the small/medium enterprise's business to safeguard the business' assets.

When the GST was introduced, the Liberal government of that time spent millions of dollars in educating businesses, both large and small, on how the GST would operate.  Unfortunately, neither the previous Labor government nor the current Liberal government has seen fit to finance a major education campaign for businesses, especially small businesses, on the operation of the PPSA.  There was little chance of the GST sending a business broke, but it's a real possibility that it could be the fate of a business for not complying with the requirements of the PPSA.

We strive to act as your 'trusted adviser'.  In that respect, we believe we have a responsibility to undertake a due diligence review of all of our clients' affairs, to ensure appropriate systems have been introduced, to offer you adequate protection under the PPSA.

What Types Of Transactions Are Included In The PPSR?

There are a wide range of transactions, including:
     •    Goods sold with 'Retention of Title' clauses (Romalpa).  These clauses need to be drafted after 31 January 2012, to ensure the Romalpa Clause is PPSA compliant.
     •    Supply of goods on consignment
     •    Goods stored in someone else's property – this has been an area of great contention, since this legislation was introduced.
     •    Goods attached to other goods (eg motors attached to boats)
     •    Mixed goods
     •    Motor vehicles
     •    Equipment renters
     •    Motor vehicle leases
     •    Rental and lease of plant and equipment
     •    Debtors
     •    Livestock on agistment
     •    Farmer's crops
     •    Tradesman's plant, tools, etc, on building sites
     •    Boats
     •    Aircraft
     •    Feed for livestock
     •    Seeds, fertilisers and pest control for crops
     •    Artworks, sculptures, paintings, etc
     •    Loans made to other businesses (including closely-related businesses)
     •    Licences
     •    Assets held on trust
     •    Service entity arrangements (where one entity owns the assets and rents or leases those assets to another entity, even if they are closely held within your own business group)
     •    Intellectual property (eg intellectual property that has been developed by one entity that's marketed by another entity, even within your own business group)
     •    Rental or lease of premises (undoubtedly, you will have plant and equipment stored in those premises, in that case, you need to consider protecting yourself under the PPSR).

Do You Have A PPSR System?

Some people believe the only time they have to worry about the PPSA is when they sell their business, to ensure that any items which have been registered on the PPSR have been withdrawn.  If only this were true!

There's a whole range of actions that need to be taken by most businesses, to ensure the business is able to survive intact, well before you consider selling your business.
The personal property issues that should be closely examined in a due diligence review, which we would undertake for you, include:

       •    Review of the treatment of stock – if your business supplies stock to a retailer, registration on the PPSR needs to be made before the stock is delivered to the retailer, if you are going to avail yourself of the protection the PPSR offers.
       •    Livestock – protection is available for when livestock is on agistment.
       •    Suppliers of fertilisers, seeds, pest control, etc, to farmers for their crops, can obtain some protection with the PPSR.
       •    Goods supplied by the business – registration has to be completed within 15 days if you want full protection.
       •    Artists' works, including paintings, sculptures and other works of art, normally placed at a gallery on a consignment basis, can be protected.
       •    Plant, equipment and construction equipment that is temporarily located on someone else's property, can cause significant problems, unless the procedures under the PPSA have been followed.
       •    Leases, both for motor vehicles, boats, aircraft and other property, can be protected by registration on the PPSR.
       •    Other physical personal property also needs to be closely examined.
Personal property that you might not have considered, relative to this type of legislation, includes

      •    Licences
      •    Trademarks
      •    Intellectual property
      •    Loans
      •    Assets held in trust by other people
      •    Service entity arrangements
      •    Other personal property.

As your accountants, we want to ensure you have an adequate system in place, to ensure you are protected under this legislation.

When the government of the day introduced this legislation, it obviously assumed that every business person would study the legislation, understand how it worked and lodge the required registrations, to protect their interest.  In theory, this works fine.  However, in practice, the amalgamation of 60 Acts, from Commonwealth to State and Territories, has caused a lot of confusion.  We believe this can only be overcome through a methodical approach to conducting an individual due diligence review for each of our client's business.

If you would like to have a discussion with us in relation to us undertaking a due diligence review of your preparedness for the PPSA, in the reporting to the PPSR, please don't hesitate to contact us. 

What Services Can Accountants Offer – Part 5

Personal Property Securities Register – Due Diligence Review
As mentioned in the other articles contained in this newsletter, the PPSA is far-reaching and can potentially affect virtually any type of business.

One of the problems with this legislation is that you will never know whether you have a problem until the unfortunate time when:
•    one of your customers has an insolvency event occur and a liquidator, receiver, trustee in bankruptcy or administrator is appointed; or
•    the same problem occurs for a business to which you're renting or leasing assets; or
•    you have assets stored in their property.

The PPSA can also affect assets you might not have considered would come under the influence of this legislation, including:
•    loans you've made to other entities, including closely-associated entities;
•    service entity arrangements, whereby one entity may own plant and equipment that has been rented or leased to another entity; and
•    intellectual property that has been developed by one business, which has been leased to another business.

In each of these cases, if an insolvency event occurs in the trading entity, this can have severe repercussions for the business that owned that asset, if that asset has not been registered on the PPSR.

We can conduct a due diligence review of your systems and make recommendations for your ongoing monitoring of your business activities by your own team, to ensure that, as far as possible, you've protected yourself from these types of problems.

If you would like to have a discussion with us relative to a PPSR due diligence review, please don't hesitate to contact us. 

What's It Mean?

Terminology – Personal Property Securities Act – continued
Accessions – tangible items or components that retain their original separate identity, notwithstanding that they have been installed or affixed into other larger goods.

All Present and After-Acquired Property (ALLPAAP)
a.    personal property over which the grantor has an interest at the time the registration is made on the PPSR; and
b.    personal property acquired after the registration is made on the PPSR.

All Present and After-Acquired Property, Except (ALLPAAP, Except) – the term 'all present and after-acquired property, except' (abbreviated to 'ALLPAAP, except') means all present and after-acquired property, except for an item or class of personal property stated in the registration as being exempt.

ATO Targeting Specific Deductions

The Australian Taxation Office (ATO) has decided to change its usual tactic of targeting specific professions and is now targeting specific deductions.  In the 2014 tax season, the areas of deductions targeted are going to be focusing on:
•    overnight travel;
•    transporting bulky tools and equipment; and
•    work-related proportion of use for computers, phones and other related electronic devices.

If any claims are made on the 2014 income tax return, it is recommended that extra records and notes are kept of the reasons why these claims are being made, how these claims are being substantiated and what private use has been included in determining this claim.

The common mistakes that were revealed during audits are that claims are made without any evidence to support how the claims were apportioned between private and work expenses, claiming travel between home and work and claiming the full deduction for a travel allowance without having spent that much.

Government Grants For SMEs

Entrepreneurs' Infrastructure Program – Phase One Commences
The Australian government has announced the commencement of the Entrepreneurs' Infrastructure Program, which will be released in three phases:
•    First Phase – Business Evaluation and Business Growth Grant, which is now fully operational.
•    Second Phase – Research Connections Program commences in September 2014.
•    Third Phase – Commercialising Ideas commences in November 2014.

Business Evaluation and Business Growth Grant
The Business Evaluation and Business Growth Grant will be available for businesses operating in the following industries:
•    Defence
•    Energy, Water and Waste Management
•    Freight and Logistics
•    Infrastructure-related Construction
•    Information and Communication Technology (ICT)
•    Manufacturing or Manufacturing-related Services
•    Medical and Pharmaceutical
•    Professional Services
•    Resources Technology
•    Creative Industries
•    Tourism (some sectors).

The program is also available to businesses operating in remote Australia, who meet the remote Australia turnover requirements, which is a minimum of $750,000.

The turnover requirements for creative industries and tourism sector is $1 million per annum.  Each of the other industries require a minimum turnover of $1.5 million.  In every industry, category and remote Australian businesses, the maximum turnover is $100 million.

For businesses located in remote Australia, applications will be accepted from businesses with an Australian Business Number (ABN) or an Australian Company Number (ACN).  For all other industry applicants, the applicant must have an ACN.

The applying business must have operated for three consecutive years.

In the first instance, the applicant will be given a business evaluation by a business advisor employed by the Department of Industry.  Following that evaluation, the Department of Industry may issue an invitation to the business to participate in the Business Growth Grant.

The Business Growth Grant offers a grant of up to $20,000, excluding GST, on a 50% grant basis.  To apply for the Business Growth Grant, the business:
•    must have received a business evaluation report in the previous six months;
•    must be planning to implement one or more of the eligible recommendations identified in the business evaluation report;
•    must be solvent; and
•    must be able to pay its share of the cost.

The work that can be undertaken is virtually any activity, which will improve the business performance of the applicant.

If you are interested in being considered for the business evaluation process, please don't hesitate to contact us.

Debtors' Days Outstanding Calculations Are Important For Control

With an effective debtors' control system you can:

•    Regularly calculate your effective debtors' days outstanding?
•    Do you know how to calculate debtors' days outstanding?

We can supply you with a form to assist you with the calculations, so you can calculate debtors' days outstanding at the end of each month.

Dun & Bradstreet has indicated that the national debtors' days outstanding figure is currently at 54 days.  An internal procedure can be established, which will help you identify major debtors.  You then need to have discussions with these debtors, to ensure you're going to receive a substantial amount of money from them during the forthcoming period of time.  If this procedure is carried out regularly, it will assist in reducing the debtors' days outstanding.

If you would like to have a discussion with us relative to the management of your debtors' system, please don't hesitate to contact us. 

Leadership Of Teams

Seldom do leaders have the luxury of choosing all the members of their team – normally they inherit at least some of them.  Irrespective of how the team is assembled, leaders must get to know the members as soon as possible.  Their personalities, values, attitudes and behaviours, capabilities, interests and their strengths and weaknesses are all important to the leader, as he/she needs to build and maintain good relationships and trust with and between all team members.  A group of people without a common purpose or leader is not really a team.  Leaders don't operate just for themselves – they do so to achieve with, through and for their team members.

Understanding what makes a good team gives team members a benchmark for which to strive.  A useful approach for a leader is to get a team member to think for themselves on what the indicators might be:
•    clear, documented purpose;
•    clearly-defined accountabilities and authorities;
•    an open, pleasant and supportive environment;
•    well-structured processes and procedures;
•    the support of superiors;
•    capable and motivated people; and
•    importantly, a good leader.

If you would like to have a discussion with us in relation to the development of a leadership strategy within your business, please don't hesitate to contact us.

Characteristics Of A Well Run Business – Part 11

Do You Have Sufficient Capital?
To run a successful business, you need to have a supply of capital.  This could be your own money, money lent to you by family and friends, or money you've negotiated to borrow from a bank.  Banks are reluctant to lend to a start-up business, unless the business operators have some 'hurt money' in the deal.  For starting a business or expanding a business, business operators need to prepare a well-thought out budget and cashflow forecasts, to determine whether they have contributed or borrowed sufficient capital, to ensure the future viability of the business.

If you would like to have a discussion with us in relation to the adequacy of the capital base of your business, please don't hesitate to contact us.

Business Packages

If you're serious about growing your business then we have the right packages for you! Profitwise will provide you a business valuation with regular advice and guidance.

View packages

Business Health Check

A business health check is a sophisticated review of your business' financial performance over the last two to three years.

Get a check up!