Under current law a consignor remains the owner of goods it has delivered to someone else for sale, lease or disposal.
Under PPS, consignment of goods (including livestock such as cattle and horses and extracted minerals) is a registrable security interest if the transaction, in substance, secures payment or performance of an obligation, whether or not it is a commercial consignment: PPSA section 12(2)(h).
From the PPS Register commencement date (expected to be 31 October 2011), the consignment must be registered to be enforceable against third parties.
In the case of a consignment, the consignor is the secured party and the consignee is the grantor.
Once the consignee has possession of the goods, failure to have a written description of the consigned goods and agreed written consignment terms which are “perfected” (by registration) leaves a consignor at risk that its rights will not be enforceable against a third party, for example in the event of the consignee’s insolvency or failure to account for a sale to a third party: PPSA section 20.
The interest of a consignor who delivers goods to a consignee under a commercial consignment will be a security interest whether or not the transaction, in substance, secures payment or performance of an obligation: PPSA section 12(3)(b).
A “commercial consignment” is defined in section 10 as a consignment where:
(a) the consignor retains an interest in goods that the consignor delivers to the consignee; and
(b) the consignor delivers the goods to the consignee for the purpose of sale, lease or other disposal; and
(c) the consignor and the consignee both deal in goods of that kind in the ordinary course of business,
but excludes consignments where the consignee is an auctioneer to whom the goods are delivered for the purpose of sale or the consignee is generally known to its creditors to be selling or leasing goods of others.
A consignor of inventory under a commercial consignment will have a purchase money security interest (PMSI) in the inventory
[PPSA section 14(1)(d)]. But section 62(2) requires that such PMSI be registered by the consignor before the consignee obtains possession of the supplied goods and that the registration states that the interest is a purchase money security interest.This should be done at the beginning of a commercial relationship.
A security interest in consigned goods will attach to the proceeds of sale.
Bright Law can review your consignment documentation and advise you on registration procedures.
