Recently in my designated area which stretches from South Perth to Fremantle, I have had quite a few companies tell me they have the PPSA covered in their terms and conditions and this has been looked at by their lawyers/accountants. Mostly this isn't correct and tends to be a standard line by those in the company that take on the â€œgatekeeperâ€ role. We in business all know them, really what they are saying is that we are all busy, everything is going ok and hey you might be trying to sell us something.
Now let's look at a recent judgement in the NSW Supreme court regarding the PPSA.
GE Electric is a worldwide corporation emanating out of America, I would hesitate a guess that 99% of you would have heard of them. They have a huge multi-Billion Dollar revenue stream, given this fact would you think it likely they have and can afford the best accountants and lawyers available?
Why is it then that they have lost a reported $50 million worth of generator turbines when the Forge group power Pty Ltd went into liquidation? Bear in mind they took this all the way to the Supreme court and now they are being told to pay costs on top of the lost equipment.
I have read the full judgement and there are some really interesting points but the upshot is they did not perfect a PPSA registration on this equipment. A simple $39.00 registration could have saved them this $50 million loss!
I looked up GE net earnings ratio, which is just under 10% so to recoup the loss of the equipment alone without what must be enormous legal fees they would need to earn $500 million or Half a Billion dollars of revenue. If I was a shareholder, I would like to know whose fault this was.
Is it the lawyers? No the lawyers are there to try and resolve issues that get to court, how many times have you ever heard a lawyer state this is precisely what will happen? no they will say â€œin our opinionâ€, â€œit is likelyâ€, â€œthe law states but the adjudicator is the Judgeâ€. If the law was not open to argument, then we would not need lawyers.
So is it the accountants who were to blame, No the accountants are there to ensure compliance with financial regulations, ensure the company uses financial tax laws to its best advantage and contribute to strategic decisions.
Ultimately the buck stops with the CEO, the risk assessment undertaken in this case did not fully examine the legislation regarding this deal in Australia, whoever is responsible for this function is culpable for this loss, however one would think the CEO has to be responsible as well.
Let's now comeback to our company â€œgatekeepersâ€ and they can range from receptionists to purchasing officers, to account managers to CEO, and if you take on this voluntary role you better be prepared to take on the consequences.
Suppose that an area manager from EC Credit Control who are experts in the PPSA tried to get to speak to the Chief Financial Officer or General Manager of GE Electric here in Australia. They get through to a â€œgatekeeperâ€ who deems the company has the â€œbest lawyers/accountants in the world and I'm sure we have the PPSA coveredâ€ What if the shareholders take a class action against the company on the ground of incompetency and a lack of due diligence by the directors? which could conceivably happen. A thorough investigation is held and it is found you were the one who made the decision that expert advice was not needed? How far is your career going, if you are on a senior management team are you financially responsible? Who will hire you in the future based on this result?
So here is a bit of really good business advice,
Remove “Gatekeeper” mentality from your business. Encourage a company philosophy that values external advice.
Whenever you are offered a free consultation on anything you are not 100% sure of (in fact even if you are), grab it with both hands, welcome the advisor into your business, be open in your discussions, question as much as you can. If there is a basis for working together place value on the expertise and service, you have been given don't go rushing off to see if you can save a few dollars by getting the service elsewhere, remember this consultant spent time and money out of their own pocket to proactively come and assist your business, ignoring that obvious signal of positive customer service you will get in the future is a huge risk.
Don't rely on lawyers, solicitors, accountants or even your own staff to proactively advise you.
One thing I can tell you with absolutely certainly is that someone in GE Electric sat with their head in their hands and at one point said â€œif onlyâ€¦â€