Real-World Examples of What Happens When Customers Go Insolvent

When companies go into administration or liquidation, you want to place yourself in the best possible position to recover your debt. Here we look at two real-world examples of businesses who have had to deal with their customers going insolvent. One company is facing the prospect of losing millions of dollars of equipment on lease and hire to a customer. The other business has lost nothing. The difference? One had registered their security interests on the PPSR; the other didn’t.  

This supplier lost out

After operating for more than 20 years, Virgin Australia went into voluntary administration, leaving suppliers and customers out of pocket. The airline owes millions to thousands of creditors. One of these creditors is an airport equipment supplier who had been leasing and hiring runway and airport equipment like tractors, baggage and pallet loaders to Virgin Australia for several years. 

Although this supplier had previously considered registering their security interests on the PPSR, they never quite got around to it. They were entirely taken by surprise when Virgin became one of the first sizable casualties of the coronavirus pandemic.   

As an unsecured creditor, this equipment supplier is going to pay a high price for the airline’s downfall. Without PPSR protection, they are likely to lose all their equipment on lease and hire to Virgin Australia. It could be a third of everything they own.

Businesses hiring, leasing or otherwise making equipment available on medium or long term arrangements will lose their equipment – even if they own it. This is what is known as a PPS Lease and it changes the concept from ownership to a concept centred on priorities.

Secured parties such as banks and financiers with registrations over this equipment will get it first. Even if there were no competing registrations, the equipment will vest with the insolvency practitioner. Either way the supplier loses out.       

If the airport equipment supplier were PPS compliant, they would recover their equipment and be in a position to negotiate payment for continued use. They could have secured the equipment with just two PPS registrations at a total cost of $12. 

This supplier registered on the PPSR

With the hospitality sector one of the hardest hit by the COVID-19 pandemic, some cafes and restaurants will never re-open their doors. If one of your customers closes down, PPS compliance puts you in a position to recover your goods or get paid, in part or in full.

Our coffee supplier client had five of their commercial coffee machines worth close to $100,000 on their customer’s premises the day it went insolvent. What saved them from losing all these machines was one valid PPS registration of their security interest over the personal property (coffee machines) they had on bailment to the customer. 

As soon as the coffee supplier heard news of the closure, they made contact with the insolvency practitioner asking for their machines back. After some backwards and forwards with the practitioner, they were successful in retrieving their machines. A single $6 PPS registration had done its job, and the coffee supplier had a successful outcome. 

If you are a trade creditor or you hire, lease, loan or finance equipment, registering on the PPSR is essential to secure your rights when faced with customer insolvency. Timing is important so when you get a new customer is to get the account application form, it is best practice to check their creditworthiness, and register right away before delivery of any goods. That way you will avoid any timing issues and be fully protected.

For purpose-fit guidance and exceptional support in validating, updating and renewing PPS registrations, contact our PPSR specialists at EDX by Equifax. With 40 years of combined experience in insolvency and credit management, they make it their mission to help businesses like yours use the PPSR to insulate against risk, including negotiating with insolvency practitioners to protect your rights as a creditor.

Download free ebook:  The Beginners Guide to the PPSR