How to protect materials you supply when the builder becomes insolvent
What happens to unpaid materials when a builder fails
A supplier delivers materials to a building site. The invoice remains unpaid. The builder collapses, and a liquidator or administrator is appointed.
The insolvency practitioner identifies assets, determines who holds security over those assets, and distributes available funds. Suppliers without registered security become unsecured creditors. In a liquidation, unsecured creditors are paid only after the costs of the liquidation and secured creditors, and if funds remain they receive a dividend on a proportionate basis.
The difference in recovery between a secured creditor and an unsecured creditor can be substantial. One government case study noted grain growers with registered security recovered approximately ninety per cent of debt owing, while unregistered suppliers were expected to receive ten cents in the dollar.
What the Personal Property Securities Register does
The Personal Property Securities Register is a national online government database. When you register a security interest in goods before you supply them, you record your claim over those goods until payment is complete.
A registered supplier who has complied with the timing and registration requirements can be classified as a secured creditor if the buyer becomes insolvent. A registered security interest may give you priority over other creditors and a stronger position to recover your goods or their value.
The PPSR does not cover land, buildings or fixtures to land. Goods that become part of the land, such as materials fixed into a structure, move outside the personal property regime. Timing and the nature of attachment both matter.
Registration alone is not enough
You must have both a retention of title clause in your contract or trading terms and a correctly completed PPSR registration. A retention of title clause states that ownership of the goods remains with you until you receive payment in full.
Official guidance confirms that a retention of title clause in a contract or invoice may not protect you on its own if your customer does not pay or becomes insolvent. Registration on the PPSR supports and enforces your contractual retention of title.
Ensure your standard terms of trade include a clear retention of title provision. Registration without a supporting contractual clause, or a clause without registration, leaves gaps in your protection.
When and how to register
For goods that will form part of the buyer's inventory, such as materials supplied to a builder for projects, you should register before the buyer takes possession. For goods used as equipment, you have fifteen business days after delivery, but early registration is recommended.
Registration requires a PPSR account and a secured party group. You will need the buyer's correct legal identifier (usually the Australian Company Number for a company), a description of the collateral by class, and payment details. Registration fees start at six dollars for up to seven years.
Use the correct grantor identifier. For a company, the ACN is required, not merely the trading name. An incorrect identifier can make your registration legally ineffective and undiscoverable by others searching the register.
Source: How to register a security interest on the PPSR (Australian Government)
Why late registration or missing details create risk
A registration lodged after delivery of inventory goods, or one that contains errors in the grantor details or collateral description, may not achieve the intended priority. If your buyer becomes insolvent and your registration is defective, you risk being treated as an unsecured creditor despite having attempted to register.
The PPSR is a public register. Liquidators, administrators and other creditors search it to identify secured interests. If your registration cannot be found because the identifier is wrong, your interest may be overlooked.
Do not assume you can repair a late or incorrect registration after insolvency is announced. Set up your account, prepare templates for recurring customers and check the registration details each time before you confirm a supply arrangement.
Source: Before you create a registration (Australian Government)
The limits of PPSR protection
Once materials are affixed to land or incorporated into a building, they may become fixtures. Fixtures are not personal property under the PPSR regime and your registered security interest in the goods as supplied may no longer be enforceable against the land.
PPSR registration does not prevent someone from on-selling your goods, nor does it guarantee payment. It strengthens your legal position in an insolvency by recording your claim and may improve your priority relative to other creditors.
Registered security does not replace active credit management. Review your customer's financial position, monitor overdue accounts and act early if payment concerns arise. A registration on file is useful only if the goods can still be identified and recovered, or their value realised within the insolvency process.
Set up protection before the next supply
If you supply materials, equipment or fittings to builders, developers or contractors, review your terms of trade now. Confirm that they include a retention of title clause and that the clause is clearly presented to the buyer before or at the time of supply.
Create a PPSR account and a secured party group. Prepare a registration process so that each new customer or supply arrangement is registered before goods leave your premises or yard.
If you already have outstanding invoices with customers experiencing financial difficulty, check whether you registered a security interest at the time of supply. If you did not, or if the registration contains errors, seek advice on the options available to you now. Recovery prospects after insolvency depend heavily on the steps taken before insolvency was announced.