Sarah’s Retention Contention

Will she learn about changed personal property security laws the easy way, or the hard way?

Sarah was a young entrepreneur who ran a modest business manufacturing the “Toby-Baby” clothing range in a large workshop. Toby-Baby had been relatively popular, but Sarah was hungry for growth.

Like many in business, however, she was unaware that the Personal Property Securities Act 2009 (Cth) (PPSA) introduced new financial and legal concepts in relation to personal property securities and ownership that could have a profound impact on the sustainability of her operations.

In fact, if she was honest, Sarah wasn’t aware that the PPSA even existed.

A window opens

While researching potential Toby-Baby distributors one afternoon, Sarah came across a company called Jareth Enterprises Pty Ltd (Jareth). Jareth was a long-established retailer, operating a number of stores throughout the city.

Sarah liked what she saw, so arranged a meeting. Jareth’s proprietor, who had named the company after himself, struck Sarah as a charismatic, well-dressed character who took pride in his business.

All external signs were good, so when Jareth expressed a desire to carry Toby-Baby, Sarah didn’t hesitate. She negotiated a fair price and within a short period Toby-Baby was on Jareth’s shelves.

Orders were made on a weekly basis and subject to Sarah’s standard terms and conditions, which included an effective retention-of-title clause. Sarah was to be paid within 30 days of delivering each batch of clothing.

An important choice must be made

Jareth put a lot of effort into marketing the Toby-Baby range, and it paid off. Sales grew steadily and soon even celebrity babies were seen wearing the label. Jareth began looking at obtaining finance to update his shops and was keen to significantly expand his commitment to the brand.

Sarah was ecstatic. Here was the opportunity for real growth that she’d been craving. But she was also nervous. The expansion would mean that she’d be supplying Jareth the vast majority of her workshop’s output.

Something in her wondered if she should get legal advice on her agreement with Jareth before diving in.

What do you think Sarah should do?

If you think Sarah should not choose to obtain legal advice relating to her agreement with Jareth, proceed to Outcome A.

If you think Sarah should choose to obtain legal advice, proceed to Outcome B.


Outcome A

Sarah’s failure to obtain legal advice meant she remained unaware of the PPSA and its implications, including the need to register the Purchase Money Security Interest created by the retention-of-title clause in her standard terms and conditions.

Unknown to Sarah, everything she supplied to Jareth was at risk of being lost from the moment it was delivered. So when the orders from that company became her major source of revenue, her business was effectively on the brink of failure.

Three months later, something unfortunate happened. Shortly after delivering a large Toby-Baby order to Jareth, but before it had been paid for, Sarah got the news that Jareth had become insolvent. A liquidator, Mr Hoggle, had been appointed. Concerned but pragmatic, Sarah contacted him and explained that she still had title to the Toby-Baby clothing and wanted it back.

Mr Hoggle was abrupt in his reply. “On the contrary, under the PPSA that’s my rightful property. It may not seem fair, but that’s just the way it is.”

He explained that, because Sarah had not registered her security interest on the Personal Property Securities Register (PPSR), she had no direct claim to the Toby-Baby delivery. Mr Hoggle said that Sarah would have to line up with the other unsecured creditors and wait in hope.

In the end, Sarah didn’t receive a thing and took a huge financial loss. She was forced to undertake a number of emergency cost-cutting measures, including the heartbreaking retrenchment of loyal staff, but all to no avail. In a short period of time, she too had no choice but to close her doors.

Outcome B

Following her instincts, Sarah arranged a meeting with her lawyer before increasing her supply of Toby-Baby to Jareth. She just wanted to check on Jareth’s credentials and ensure all legal details were covered.

Sarah’s lawyer, Mr Prometheus, immediately pointed out the importance and implications of the PPSA. In response to Sarah’s expression of surprise, the relatively young but wise gentleman noted that a lack of awareness about the impact of the new PPSA law was to be expected because it changed centuries-old ideas of property ownership.

Mr Prometheus advised Sarah that her retention-of-title clause created a Purchase Money Security Interest that she would definitely need to register on the PPSR. He went on to explain that, if done properly, this would actually enable Sarah to achieve a better level of security than was previously possible under the common law.

But if not done properly, he said, suddenly very serious, she could still find herself in a lot of difficulty. Mr Prometheus noted that since the PPSA had come into operation, a number of businesses had fallen into the trap of rushing to register security interests without understanding the labyrinthine concepts contained in the PPSA, and their consequences. He said these businesses were a bit like Icarus – flying too close to the sun.

Mr Prometheus recommended Sarah check out the government website – – for more information.

With Sarah’s approval, Mr Prometheus then went to the website himself and registered Sarah’s Purchase Money Security Interest online to secure her retention-of-title rights to the Toby-Baby clothing supplied to Jareth.

Three months later, something unfortunate happened. Shortly after delivering a large Jareth order, but before it had been paid for, Sarah got the news that Jareth had become insolvent. A liquidator, Mr Hoggle, had been appointed.

Concerned but pragmatic, Sarah contacted Mr Prometheus and informed him that it was critical she get the clothing back, as it represented months of hard work and a huge investment. He immediately wrote to Mr Hoggle on her behalf and requested that the Toby-Baby clothing now in his possession be returned to Sarah subject to her registered Purchase Money Security Interest. Mr Hoggle promptly complied.

Sarah was incredibly relieved. This meant she could now walk away from her main distributor’s insolvency largely unscathed, and supply her product to a new retailer as quickly as possible. The Purchase Money Security Interest registration had cost just $7.40, yet had effectively saved her business.

Later, Sarah received a heated call from Jareth in which he had a go at Sarah for taking back her clothing and complained that he didn’t understand how the PPSA worked. Jareth said he had apparently failed to properly register his company’s security interests and that, as a result, his financier had “pulled the pin.”

Jareth thought the PPSA was too harsh and implied that Sarah should feel obliged to negotiate a new deal with him. Sarah replied, “Oh no. You have no power over me. I have all of my Toby-Baby clothing back and I’m already negotiating with a new distributor who has all their ducks in a row!”


The PPSA is now part of doing business. Get it wrong and your business could fail. Get it right and it could open valuable new opportunities. For advice on how to ensure your organisation achieves the latter, contact DW Fox Tucker.

All characters in this publication are entirely fictitious and any resemblance to real persons is purely coincidental. This article does not constitute legal advice.

For more information, please contact:
William Esau

William Esau
p.  +61 8 8124 1955
e.  Email me

This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this article, or what it means for you, your business or your clients' businesses, please feel free to contact us.

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