Retention of Title in Australia: How the PPSA Exposes German Exporters to Total Asset Loss

Under the Personal Property Securities Act 2009 (Cth) (PPSA), a retention of title (RoT) clause in a contract for the sale of goods is treated as a security interest regardless of how it is expressed, regardless of whether German or any other foreign law governs the underlying supply contract, and regardless of whether the seller believes it retains legal ownership of the goods. Section 12 of the PPSA applies a substance-over-form test: if a transaction in substance secures payment or performance of an obligation, it constitutes a security interest and must be registered on the Personal Property Securities Register (PPSR) to be effective against third parties and in the buyer’s insolvency.

For your company, the commercial stakes are high: a German exporter that ships goods to an Australian buyer on standard Eigentumsvorbehalt (retention of title) terms, and does not register a financing statement on the PPSR within the required timeframe, will find that its security interest is unperfected. Under PPSA s 267, an unperfected security interest vests in the grantor immediately before the grantor enters administration or liquidation. Your goods become the property of the insolvent estate. You are left as an unsecured creditor, competing with all other creditors for whatever distribution the liquidator achieves.