How saving a few dollars can cost you big
Another insolvency file and the Personal Property Securities Act (PPSA) has claimed another victim. This is certainly not the first and it won’t be the last.
A bakery, operated by TP Pty Limited, expanded its operations to sell bakery goods in two new retail cafes and subsequently ran into financial difficulty. To alleviate the financial burden, the company’s bookkeeper decided to loan the company $60,000. He obtained a loan agreement from a website that provides “legal contract and agreement generation services”. Obviously he wanted to secure his loan and found the correct loan agreement on the website and entered the information requested, to generate his loan paperwork.
The bookkeeper advanced the $60,000 and had the director sign the agreement on behalf of TP Pty Limited and also as a guarantor. The agreement purported to take a charge over all assets of TP Pty Limited. Unfortunately the $60,000 loan was not enough to save TP Pty Limited and the director placed the company into liquidation some six months later.
Following our appointment as liquidators, the bookkeeper contacted us with a copy of the loan agreement. He asserted that he was a secured creditor pursuant to the agreement and made a claim to the assets of TP Pty Limited. The phone discussion ended briefly after the question was asked:
Worrells: “Have you registered your security interest on the PPSR?”
Bookkeeper: “What’s that?”
A review of the website that the bookkeeper obtained the loan agreement from includes the following commentary in relation to the Secured Loan Agreement template:
Since January 2012 the rules relating to the registration of charges, mortgages over personal property and other securities given by companies have changed.
All securities over personal property (with a few exceptions) are now regulated by the Personal Properties Securities Act (Cth) 2009. Accordingly the Security granted under this Secured Loan Agreement must be registered on the Personal Property Securities Register (“the PPS Register”).
Unfortunately for the bookkeeper, he didn’t read the above and by taking a ‘do-it-yourself’ approach to save a few dollars on legal fees, the bookkeeper is now an unsecured creditor in the liquidation and it is likely he won’t be receiving a dividend.