A PIECE of legislation that quietly became effective in January 2012 is set to shore up farmers’ rights when dealing with grain businesses that go bust.
The Personal Property Security Act (PPSA) will raise grain growers’ legal standing when owed money by an insolvent business.
Rather than sitting at the bottom of the pile as unsecured creditors, growers will be entitled by legislation to either repossess their goods if possible, or the proceeds of the sale.
Expert in the new law, solicitor Michael Staalkjaer, who has set up a business EDX dedicated to ensuring compliance with the PPSA, said the law applied to all personal property apart from land, fixtures and some statutory licences, such as water rights, so crops and grain were very much part of the scheme.
To ensure they are protected from non-payment or insolvency, Mr Staalkjaer said contracts needed to be registered on the Personal Property Security Register (PPSR).
If the contract is registered, farmers will not only be priority creditors, they will have an interest in commingled goods – such as grain in silos, meaning they will have the right to physically repossess grain, even though it is not actually the same grain produced, in the event of non-payment.
“It is a big win for growers, this new interpretation of grain, as in the past they have always struggled to prove ownership of grain once grain is commingled and haven’t been able to get it back.”
“Before you had the contractual terms, and non-payment was a contractual dispute, now, if the contract is registered, it is no longer a contractual dispute, but a statutory rule, governed by the act.
The act will have wide-ranging applications.
Mr Staalkjaer said farmers who sold grain to livestock operations can enforce the debt by seizing livestock to cover any outstanding debt.
“With a proper registered agreement, you will be able to take steps and repossess some of the livestock to recoup your debt.”
On the other hand, businesses supplying goods to a farmer to enable a crop to be produced, such as merchandise businesses, will have a priority security interest in the crop or proceeds of the sale of the crop, and will be able to seize and sell the crop to recover what they are owed.
“Even though land is not part of the PPSA, standing crop is not deemed to be part of the land, so a security interest remains even if the land is sold.”
To get contracts registered on the PPSR, the contract must be compliant with the legislation, and then registered.
Farmers can either outsource the registration of the contract or do it themselves on a government controlled website.
It will not be compulsory to register contracts, but Mr Staalkjaer said farmers were exposing themselves to unnecessary risk by not doing it.
“If a business goes belly up, and you are an unsecured creditor and other farmers are registered under the PPSA, then they will have priority over you to get the grain back.”
The PPSA was passed in January 2009, but the PPSR was only set up in January this year.