A LEADING proponent of the personal property security register (PPSR) and purchase money security interests (PMSIs) as means of managing counterparty risk in the grains industry has defended the products from claims they are not worth the effort.
Chris Heinjus, director with South Australian-based agribusiness Rural Directions, said using the government-backed mechanism would at very least give grain growers better leverage when dealing with debtors.
The register is a government-backed mechanism which, in the grains industry, allows growers to register their grain via PMSIs.
Once the grain is registered, growers are elevated in status in the event of an insolvency from an unsecured to a secured creditor, vastly improving their chance of recovering the money they are owed.
However, grain producers have criticised the concept, saying it has not provided any value in terms of recovery of debts in any grain trader insolvency cases that have occurred since the PPSR was set up in 2012.
Mr Heinjus said the effectiveness of a PMSI was very reliant on the wording of contracts, with a retention of title clause required for it to work.
He said he advised his clients that the process of setting up a PPSR and filling in PMSIs was valuable in itself as a due diligence exercise.
“It gets you thinking about the whole concept of counterparty risk and how to manage it and that is a critical thing for farm businesses.”
Along with that, he said having a PMSI in place would assist in the process of trying to make a claim for unpaid debts.
“Whether or not you think it will work in the legal sense, it does provide a good bargaining tool in the negotiation process when trying to recover those debts.”
Grain trader insolvencies are again in the headlines following the collapse of Barooga Agri Products in July, which has closed its doors with debts of over $5 million.