North Sydney Commercial Lawyers

SMEs unready for ownership changesPrint This Post

“SMEs unready for ownership changes”, The Australian Financial Review, 5 July 2011

by Jason Clout.

Looming changes to property ownership will affect the operations of a vast number of small and medium enterprises.

Advisers say the Personal Property Securities Act will alter the way banks deal with the small business sector. Leases and charges over items used in businesses could be affected by the change.

Whereas the big banks have been working for years to prepare themselves for the scheduled October 31 start, little has been done in the SME community to get ready for the new legislation. There will be a two-year phasing in period until October 2013.

Leigh Adams, principal of Leigh Adams Lawyers, said the reforms could leave small businesses exposed to questions of property ownership.

“There could be a change to the traditional concept of ownership for all types of property, other than land, which has been excluded from this legislation,” Mr Adams said.

The existing system was complex, he said. The new act was designed to replace about 70 state and territory acts and more than 40 property registries. So he acknowledged there was a point to reforming the system.

But Mr Adams said the danger was that SMEs could be unwittingly put in a disadvantaged position.

Many of the initial problems could stem from questions of ownership of property of troubled or poorly performing businesses.

One hypothetical example is the use of an industrial robot in a factory. He explained there were two ownership rights pertaining to such robots, the right over the robot itself and the one covering the patent rights to operate that piece of equipment.

Mr Adams said if the business operating that robot finds itself in financial difficulty, its lender might come and claim the robot as part of the monies owed by the business.

But the bank would also be getting the patent rights to that robot, perhaps without the real owner of those rights knowing there has been a change to the status of that robot.

If a bank on-sells that robot to a third party, the original designer/manufacturer of that robot would have to chase their patent royalties from that third party. “The ultimate patent holder may not even know that third party,” Mr Adams said.

Another area which will be affected was where goods were supplied by a wholesaler to a retailer under a retention of title arrangement.

Many small business owners believed that including their property on the PPS Register would be sufficient protection under the new scheme.

But Mr Adams said that the register was only one of the steps required to secure and interest in a piece of property.