When will the registration of my security interest under the Personal Property Securities Act 2009 expire?

The Personal Property Securities Register ("PPSR") commenced operation on 30 January 2012. 

A large number of securities registered under that Act by financiers were for 7 years. 

As a result, there will be a significant number of registered security interests automatically expiring on 30 January 2019.

Any security holder should be reviewing their registrations regularly and deleting registrations that are no longer applicable. 

However, there is no warning provided by the PPSR that registrations are about to expire. Therefore, security holders who take no action in respect of registrations that are due to expire may find themselves without security from 31 January 2019. 

Readers should note that current registrations can only be re-registered if they remain current. 

Therefore, if a registration expires, a security holder will have to register a new security interest; this may result in a loss of priority if there are subsequent security interests lodged in respect of the secured personal property. 

I urge all security holders to check their registrations on the PPSR regularly. 

In particular, I urge all security holders who lodged seven year registrations in 2012 to check that those registrations are still current, and if so to take steps to reregister them. 

WG Stark 
Hayden Starke Chambers

Have there been any recent updates to the Personal Property Securities Register website?

The Australian Financial Services Authority has updated its 9 minute power point presentation on the Personal Property Securities Act. See: https://bit.ly/2IYWNf8

The AFSA claims that this is a handy resource for PPSR practitioners to use when educating clients or new staff about the PPSR and its implications for businesses selling or hiring on terms. 

There is also a PPSR Industry information section on the website, which includes a space for comments, suggestions and improvements to be left. see: https://bit.ly/2HnmEAd

WG Stark 
Hayden Starke Chambers

New definition of PPS Lease under the PPSA is now law

Further to my post on 12 May 2017 (see: http://bit.ly/2qRldhJ), the new definition of 'PPS Lease' under the Personal Property Securities Act 2009 (PPSA) came into effect on 20 May 2017.

As a result, section 13 of the PPSA now extends the minimum duration of PPS leases from more than one year, to more than two years. 

The Act also now makes it clear that leases of an indefinite term will not be deemed to be PPS leases unless and until they run for a period of more than two years. 

W G Stark 
Hayden Starke Chambers

When will the PPSA be amended to extend the minimum duration of PPS leases to 2 years?

According to the PPSR web site (see: https://www.ppsr.gov.au/blog-speeches/pps-leases-bill-passed-australian-parliament) yesterday the Personal Property Securities Amendment (PPS Leases) Bill 2017 (Cth) was passed by the Australian Parliament.

This Bill amends section 13 of the Personal Property Securities Act 2009 to extend the minimum duration of PPS leases from more than one year, to more than two years. 

This Bill also amends the Act to provide that leases of an indefinite term will not be deemed to be PPS leases unless and until they run for a period of more than two years.

The second reading speech claims that the Bill will significantly reduce the regulatory impact which the Act is having on short term hire and rental businesses, the majority of which are small to medium enterprise. 

The hire and rental sector almost exclusively uses indefinite term leases which usually run for less than a week and rarely exceed a period of two years. 

Very few hire and rental industry related transactions would be caught by the amended provision due to the increased minimum duration. 

Section 13 of the Act as amended will continue to capture longer term high value hire and rental industry leases appropriately. 

In the next few days, it will go to the Governor-General of the Commonwealth of Australia to receive Royal Assent.

The Bill will commence operation the day after it receives Royal Assent; this will be notified via further announcements on the PPSR website and PPS Register. 

WG Stark 

Hayden Starke Chambers

Are there any proposed amendments to the Personal Property Securities Act 2009?

Following on from several recent court decisions that have seen lessors lose in claims against insolvency practitioners, the Federal Parliament has recently introduced legislation to amend the Personal Property Securities Act 2009. 

The Explanatory Memorandum says:

This Bill would amend section 13 of the Personal Property Securities Act 2009 to extend the minimum duration of PPS leases from more than one year, to more than two years. This Bill would also amend the Act to provide that leases of an indefinite term will not be deemed to be PPS leases unless and until they run for a period of more than two years.

This Bill would significantly reduce the regulatory impact which the Act is having on short term hire and rental businesses, the majority of which are small to medium enterprises. The hire and rental sector almost exclusively uses indefinite term leases which usually run for less than a week and rarely exceed a period of two years. Very few hire and rental industry related transactions would be caught by the amended provision due to the increased minimum duration. An amended section 13 of the Act would continue to appropriately capture longer term high value hire and rental industry leases. The amendments would not modify the operation of the Act in relation to leases which are in-substance security interests.

According to the PPSR web site: 

If the Bill becomes law, leases (and bailments) entered into after the changes take effect would not be deemed to be security interests under the PPS Act if they are for periods of two years or less, instead of one year or less (including options for renewal etc.).
The Bill also provides that leases of an indefinite term would not be deemed to be PPS Leases until they run for a period of more than two years. This would mean that, should the Bill become law, leases (and bailments) of an indefinite term can be registered towards the end of the two year period instead of having to be registered at the start. Additionally, if a business does not suspect that a lease for an indefinite term—entered into after the proposed changes commence—will last for two years then no registration should be made.
For lessors currently making registrations over PPS Leases—because they lease on terms that meet the current definition but not the one provided in the Bill—if the Bill become law, a registration should not be made as the agreement would no longer be considered a PPS Lease.

What is clear is that businesses which lease goods need to consider the impact of the proposed legislative changes upon the way that they conduct their business.

WG Stark 

Hayden Starke Chambers

Can I rely on the transitional provisions of the Personal Property Securities Act 2009 to enforce an unregistered security interest?

The transitional provisions of the Personal Property Securities Act 2009 (Cth) (PPSA) and their application to retention of title clauses were considered by the Victorian Court of Appeal in Central Cleaning Supplies (Aust) Pty Ltd v Elkerton (in His Capacity as Joint and Several Liquidator of Swan Services Pty Ltd (in Liq)) [2015] VSCA 92. 

Background
Central Cleaning Supplies (Aust) Pty Ltd ("Central") supplied cleaning equipment to Swan Services Pty Ltd ("Swan") from around 2009. Each supply of equipment included a retention of title clause ("ROT") in the invoice. 

Swan went into liquidation owing Central a sum of money for unpaid invoices for the period from November 2012 to May 2013. 

Central sought to enforce the ROT clause and reclaim its equipment. 

As readers will know, the PPSA covers a wide range of security interests, including rights under a ROT clause. The legislation makes it clear that a security interest will only be enforceable against a liquidator if that security interest is perfected. That would normally require the security interest holder to register its interest on the Personal Property Securities Register ("PPSR"). 

Central did not register its security interest on the PPSR. Instead it sought to rely on the transitional provisions of the PPSA, which were designed to protect security interests which had been created, or provided for, before 30 January 2012. 

The issue in the appeal was whether Central’s security interest in the equipment supplied after 30 January 2012 was ‘provided for’ by an arrangement entered into between Central and Swan in September 2009 for the supply of equipment on 30 day credit. 

Central claim could only succeed if it could show that this credit arrangement was a ‘security agreement [which] provided for the granting of’ a security interest in equipment supplied in the future.

Justice Ferguson at first instance rejected Central’s claim, holding that the credit arrangement did not ‘provide for’ the granting of the security interests in the future. 

The Court of Appeal decided that the terms on which Central agreed to provide credit to Swan included provision for the ROT clause as a standard term of each future supply of equipment. 

Accordingly, they allowed the appeal. 

In analysing the transitional arrangements, the Court of Appeal noted at paragraph 20: 

Plainly enough, what this provision contemplates is:

• a security agreement in force before the commencement time (although continuing thereafter);

• a security interest arising after the commencement time; and

• the qualifying relationship between the agreement and the interest being that the agreement ‘provides for the granting of the security interest’.

Thus understood, a security agreement — in this case, a transitional security agreement — will ‘provide for’ a security interest if it ‘provides for the granting of’ the security interest at some time in the future.

The Court went on to note that on this analysis, the relevant definitions will be satisfied if the agreement or act said to constitute the transitional security agreement makes provision for the grant of future security interests in goods supplied. It is of critical importance, therefore, to determine when and how the agreement between Swan and Central was made, in order to determine whether or not it made such provision. 

In a relatively short judgment, Maxwell P and Tate and Beach JA unanimously concluded at paragraph 39: 

It is clear that, in its terms, each ROT clause had application only to the invoiced goods the subject of the particular supply. The result of the contractual analysis, however, is that:

• Swan’s application for credit included an undertaking to be bound, in respect of every supply of equipment, by Central’s standard terms of supply;

• the ROT clause was in existence, as a standard term of supply, at the date on which the credit agreement became binding on Swan, being the date on which Swan received the first invoice for equipment supplied; and

• under that agreement, Swan accepted that all future supplies of equipment would be governed by that standard term (which would be expressed in each case to relate to the particular equipment supplied).

In those circumstances, the Court of Appeal allowed the appeal and decided that an agreement came into force — at the time of the first supply of equipment — which did ‘provide for the grant of’ a security interest in relation to all future supplies of equipment. That agreement was a ‘transitional security agreement’, and each of the security interests granted in respect of equipment supplied subsequently was a ‘transitional security interest’. 

Central was therefore able to enforce the ROT clauses notwithstanding the absence of registration.

Conclusion 
Although this decision allowed Central to enforce its ROT, it still highlights the importance of registering security interests arising from retention of title clauses on the PPSR to perfect that security interest.

Without the transitional provisions of the PPSA, Central would not have been able to enforce its ROT clause.

It should also be noted that the transitional provisions under the PPSA have now expired, so it is now unlikely that there will be further successful claims under those provisions.

WG Stark 
Hayden Starke Chambers

Who will win in a PPSA dispute over an unperfected security interest? Part two

I recently posted about a case dealing with an unperfected security interest under the Personal Property Securities Act, 2009 ("the PPSA"). 

In Pozzebon (Trustee) v Australian Gaming and Entertainment Ltd, in the matter of Australian Gaming and Entertainment Ltd (in liq) [2014] FCA 1034, the Federal Court of Australia delivered another decision confirming that a failure to perfect a security interest properly in the shadow of insolvency, will result in the vesting of the personal property in the insolvent estate. 

Regular readers will recall that the PPSA introduced concepts of 'attachment' and 'perfection'. 

The interest of a creditor in personal property 'attaches' to the property when the relevant financing transaction occurs. 

However, the security interest remains 'unperfected' until the person claiming the security interest takes further steps to perfect their interest. 

Background

Mr and Mrs Pozzebon are the joint trustees of the Pozzebon Family Superannuation Fund. They loaned $250,000 to Australian Gaming and Entertainment Ltd (AGE) on 24 December 2013. 

The money was paid over and a security agreement was executed that day. 

As a result, the security interest 'attached' to the relevant personal property on that day. 

However, the security interest was not registered on the Personal Property Securities Register ("PPSR") until 19 May 2014. 

Seven days later, on 26 May 2014 (five months after attachment of the security interest) AGE was placed into voluntary administration. It was placed into liquidation on 1 July 2014.

At the time of liquidation, AGE had $860,000 standing to its credit in a bank account. Nearly $350,000 (including accrued interest and costs) of this fund was the personal property over which the parties were fighting. 

Section 588FL of the Corporations Act 2001 (Cth) (Corporations Act) relevantly provides that if a company is placed into administration or liquidation (insolvency event) and a security interest may be perfected by registration (and by no other means), then if registration did not occur within twenty business days of attachment and an insolvency event occurs within six months thereof, the interest in the personal property vests in the company in administration or liquidation. 

Similarly to the case about which I posted yesterday, unless the lender in this case could demonstrate 'perfection' of its security interest by means other than registration, the personal property sought to be secured would vest in the liquidator because it was not 'perfected' in time.

The security interest holder was unable to show that it had possession or control of the relevant collateral. It was also unable to prove temporary perfection of its security interest. 

Collier J noted at paragraph 35 that: 

The substance of the applicant’s case is that because the relevant security interest was perfected by attachment and enforceability and effective registration, the circumstances have taken the method of perfection outside the parameters of s 588FL(2)(a)(ii). They support this contention by submitting that attachment and enforceability are not always necessary for perfection, and that an example of this is in respect of temporary perfection of which attachment and enforceability are not necessarily elements.

Therefore, it argued that its security interest prevailed over the interest of the liquidator. 

The Federal Court rejected the security interest holder's statutory construction, and decided that although the applicant's security interest attached, it was not perfected within twenty business days of that attachment. 

As it was created within six months prior to the administration of AGE, the security interest was unenforceable against the liquidator and the personal property vested in the insolvent estate.

Conclusion 

The decision confirms how important it is for holders of security interests to take all steps necessary to ensure that they perfect that security interest within the limited time frames provided for in the legislation. 

W G Stark 
Hayden Starke Chambers 

Who will win in a PPSA dispute over an unperfected security interest? Part one

There have now been a number of cases decided about some of the finer points arising under the Personal Property Securities Act, 2009 ("the PPSA"). 

In a recent decision of the Supreme Court of Western Australia,  Flown Pty Ltd v Goldrange Pty Ltd [2016] WASC 419, Master Sanderson was called on to determine a dispute between a lessor of plant and equipment valued at $460,000 and the administrator of the tenant. 

Background

The landlord of premises loaned $460,000 to the tenant to enable the tenant to purchase the plant and equipment to be used in the tenant's business (which was to be conducted at premises that were leased from the landlord). 

The loan agreement included a charge in favour of the landlord over the plant and equipment. 

As readers will know, a charge over personal property is a security interest under the provisions of the PPSA. 

However, the landlord failed to register its security interest in the plant and equipment on the Personal Property Securities Register (PPSR).

The tenant found itself in financial difficulties, and was placed into administration on 15 July 2016.

Immediately before the appointment of an administrator over the tenant, and with the landlord apparently being aware of the imminent collapse of the tenant's business, the following occurred:

• The landlord purported to give the tenant a notice terminating the lease. However, the notice of termination was not validly served and was insufficient to terminate the lease of the premises.
• Relying on a clause in the lease (where rent is in arrears or unpaid for seven days), the landlord purported to re-enter the leased premises, causing the lease to end.
• At about 11:30 am on 15 July 2016, the landlord and its builder attended the premises to change the locks. However, they were denied access by the tenant and the locks were not changed. 
• At about 1.00 pm on 15 July 2016, the landlord attached a 'notice of re-entry' to the premises (which stated that the landlord has re-entered the premises and retaken possession from the tenant).
• At approximately 1.00 pm on the same day, the tenant was put in administration.
• The next day the landlord cut the locks and entered the premises.

The landlord argued that it had a perfected security interest under section 21 of the PPSA because it had possession of the plant and equipment, having taken possession of the leased premises. As a result, it sought to resist the administrator's claim. 

The administrator claimed that the landlord's security interest in the plant and equipment was unperfected.

Under section 267 of the PPSA, where a security interest is unperfected and the grantor (here, the tenant) enters into administration, the unperfected security interest vests in the grantor and passes to the administrator. The secured party (here the landlord) is then only able to prove in the administration for the amount owed as an unsecured creditor.

Under section 21(2)(b) of the PPSA, possession of the assets cannot be as a result of seizure or repossession. 

The landlord argued that it was not in contravention of section 21(2)(b) because it:

• was in constructive possession of the plant and equipment from 11.30 am on 15 July when it attempted to re-enter the premises with the builder to change the locks; and 
• did not seize or repossess the plant and equipment; rather, it exercised a lawful right to re-enter the premises and as a consequence came into possession of the plant and equipment.

The Court held that possession of the plant and equipment means both apparent and actual physical possession by the secured party.

By placing the 'notice of re-entry' on the premises the landlord did not take physical possession of the premises. The notice did not equate to the landlord having actual physical possession of the premises. 

At paragraph 35 of the judgment, Master Sanderson held: 

35 It is clear the [landlord] was not in actual possession of the fixtures and fittings as at the time of the appointment of the administrator. Accordingly, the unperfected interest passed to the administrator and does not provide any entitlement to the [landlord] to actual possession of the fixtures and fittings.

Commentary 
This case serves as a reminder to anyone who has a security interest in fit-out or plant and equipment, or any other personal property: 

• The security interest being claimed must be documented appropriately in accordance with the PPSA, and 
• The security interest must be registered on the PPSR to be perfected.

Taking these two simple steps will avoid costly (and in this case ultimately unsuccessful) legal disputes.

WG Stark 
Hayden Starke Chambers

Are there any recent cases in 2016 about PPS leases and the PPSA?

Hammerschlag J in the Supreme Court of New South Wales recently considered the impact of the Personal Property Securities Act 2009 (Cth) ("the PPSA") in Forge Group Power Pty Ltd (In Liquidation) (Receivers and Managers Appointed) v General Electric International Inc [2016] NSWSC 52. 

Background

The dispute arose out of the installation near Port Hedland, Western Australia, of four model TM 2500+ mobile gas turbine generator sets (“the Turbines”) as part of a temporary power station established by Regional Power Corporation (“Horizon Power”).

Under a written Design Build Operate and Maintain Contract dated 23 January 2013, Horizon Power retained the plaintiff, Forge Group Power Pty Ltd (in liquidation) (receivers and managers appointed) (“Forge”), to design the power station and supply, construct, test and commission all equipment installed.

On 5 March 2013, Forge, in turn, entered into a written contract for Rental of Power Generation Equipment and Supply of Associated Services (“the Lease”) with the first defendant, General Electric International Inc. (“General Electric”), under which General Electric agreed to rent the Turbines to Forge for a fixed term, and provide to Forge certain services including the installation, commissioning and demobilisation of the Turbines.

On 11 February 2014, not long after the Turbines had been installed, pursuant to s 436A of the Corporations Act 2001 (Cth), Forge appointed voluntary administrators. On 18 March 2014, Forge went into liquidation. 

The PPSA

As readers will know from previous posts, the PPSA establishes the Personal Property Securities Register (PPSR). 

Security interests may be “perfected” on the PPSR by registration, giving those interests priority. 

General Electric failed to register its interest in the Turbines on the PPSR. 

If General Electric’s interest in the Turbines was a ‘security interest’, there was no dispute that the security interest became vested in Forge immediately before administrators were appointed (s 267(2)), meaning that General Electric ‘lost’ its interest in the Turbines (which had a value of approximately $60m). 

The ultimate question for the Court’s determination was whether the PPSA was engaged. 

This in turn required the court to determine whether the Lease was a 'PPS lease'.

General Electric claimed the Lease did not have to be registered on the PPSR on two separate bases:

• First, it was not regularly engaged in the business of leasing goods (s.13(2)(a) makes this an exception to the requirement for registration); and
• Secondly, the Turbines had become fixtures (s.8(1)(j) provides that an interest in fixtures is not subject to the PPSA).

Regularly engaged in the business of leasing

As there were no relevant Australian cases on point, the Court referred to various Canadian and New Zealand authorities. Based on those authorities, the Court decided that the question was whether or not, at the material time, leasing goods was a proper component of General Electric’s business.  Regarding the word “regular”, the Court concluded that ‘the correct approach is to recognise that frequency or repetitiveness of transactions is a factor relevant to, and in an appropriate case may be the critical factor in, the assessment of whether the leasing business being engaged in is regular.’

The Court decided that:

• Whether a person is regularly engaged in the business of leasing goods, consideration should be given to activity wherever it occurs, not only in Australia.
• The test applies when the lease was entered into.
• When the lease was entered into and at all material times after that, General Electric was regularly engaged in the business of leasing goods in Australia.

The Court went on to say that engaging in the business of leasing is a concept of wider reach than merely entering into leases.  For example, a business that does not actually enter into any leases could still be considered to have regularly engaged in leasing if it has the infrastructure, ability and willingness to enter into leasing transactions.

Fixtures

The court’s view was that the words “affixed to the land” in the definition of fixtures in s 10 of the PPSA means 'affixed according to common law concepts'. 

The PPSA did not introduce a ‘bespoke’ meaning of ‘affixed’, being a non-trivial attachment (General Electric’s argument).

Common law factors generally taken into account when trying to determine if something has been ‘affixed to the land’ are as follows:

• whether removal would cause damage to the land or buildings to which the item is attached;  
• the mode and structure of annexation;  
• whether removal would destroy or damage the attached item of property; and 
• whether the cost of removal would exceed the value of the attached property.  

The terms of the Lease made it clear that the Turbines were not designed to be affixed to land in a way that would give rise to them being considered a fixture. 

The following factors assisted the court to conclude that the turbines were not fixtures:

• the turbines were designed to be demobilised;  
• the power station was only a temporary power station; and 
• Forge was contractually obliged to return the turbines at the end of the rental term.   

Conclusion

The court decided that the lease of the Turbines by General Electric to Forge constituted a PPS lease. As General Electric did not register its interest on the PPSR, due to s.267(2) of the PPSA, General Electric’s interest in the Turbines vested immediately before the appointment of the administrators in Forge.

The insignificant cost of registration, compared to the loss of a $60m security in this case, confirms the overall importance of registering PPS leases and the significant consequences of failing to do so. 

The decision also provides some insight into how the courts will analyse several sections of the PPSA.

W G Stark

Hayden Starke Chambers

Review of the PPS Act 2014

The Federal government has announced a review of the Personal Property Securities Act 2009 (PPS Act). 

The Department has now invited submissions on issues particular to small business to be made before 6 June 2014. These will support an interim report aimed at informing government of priority issues affecting small business.

Feedback is being sought on issues such as the impact of the PPS Act on small business, the level of understanding of the PPS Act amongst small business operators and their ability to effectively utilise the PPS Act for their benefit.

The interim report will be provided to the Australian Government on 31 July 2014.

Submissions on all other issues can be made until 25 July 2014. A final report will be completed by 30 January 2015.

For more information about the review, to make a submission and subscribe for updates, please go to the PPS Act review web page on the website of the Attorney-General's Department. 

W G Stark
Hayden Starke Chambers

PPSA - first case about removal of a PPSR registration 2013

In what appears to be the first reported case on the attempted removal of a registration on the PPS Register, the Administrative Appeals Tribunal affirmed the refusal by the PPS Registrar to amend a registration. 

The decision [Cirillo and Registrar of Personal Property Securities [2013] AATA 733] was handed down on 11 October 2013.

Background
GE Personal Finance loaned money to the borrower (Mr Cirillo) in 2007 to assist with the purchase of a Holden Commodore (the personal property). The loan was re-financed in 2010, and the security in the personal property remained on foot.  

GE Personal Finance's security interest in the personal property was registered on a NSW Register (as noted, the loan commenced before the commencement of the Personal Property Securities Act (PPSA) in 2012). 

On 24 December 2011, GE Personal Finance sold a number of debts, including the one in question, to another financier.  

In 2012, after the PPS Register commenced, the NSW Registration was migrated onto the PPS Register.
 In March 2012, GE Personal Finance notified the change of secured parties to the Registrar of the PPS Register.

In July 2012, the borrower sought to remove the Registration.  

The grounds claimed by the borrower included allegations regarding:
(a) the validity of the original loan agreement;
(b) the validity of the subsequent assignment; and 
(c) the calculation of the debt.

The new financier's response to the notice was that the registration was valid and should not be removed. The new financier provided evidence of the original loan, the assignment, the repayments that were due (and not made) and the current balance owing.  Accordingly, the Registrar refused to remove or amend the Registration on the grounds that the amendment demand was not authorised under the PPSA.

The Administrative Appeals Tribunal agreed with the Registrar’s decision, finding that the borrower continued to owe a debt, secured by the personal property, which debt had been lawfully sold to the new financier and the Registration had been appropriately amended.  

Therefore, the AAT concluded that the borrower's amendment demand was not authorised.

In this case, the keeping of proper records (both of the finance contract and the debt owed), and the accurate documentation of the transfer of the security interest in question by GE Personal Finance and the new financiers were important factors in allowing the Registrar and the AAT to reach their decision. 

W G Stark
Hayden Starke Chambers  

When does the PPSA transitional period end?

As noted on the Personal Properties Securities Register web site, From 30 January 2012, the Personal Properties Securities Act 2009 (Cth) (PPSA) established a new system for the creation, priority and enforcement of security interests in personal property, which is generally all property other than land, fixtures and certain statutory interests.



A transitional security interest (TSI) is an interest in personal property that, in substance, secures payment or performance of an obligation which existed prior to 30 January 2012.


TSI's also include security interests that didn’t exist at 30 January 2012, but were created under a security agreement that existed prior to 30 January 2012 and continued to exist after that time.

An example of this could be goods supplied in 2013 under a retention of title (ROT) agreement that was created in 2011.

If you are a secured party with respect to a TSI that is not yet registered on the Personal Property Securities Register (PPSR), you need to register it on the PPSR before midnight on 31 January 2014 (Canberra time) to take advantage of “temporary perfection” and preserve the priority status of your TSI.

If you don’t do this, temporary perfection for the TSI will not apply from 1 February 2014. Registration of a TSI is free.

Although there will still be the facility to register a TSI on the PPSR after 31 January 2014, choosing to hold off registering until after that date will result in you losing the benefit of the transitional provisions.

What this means is that the ‘perfected’ status of the security interest will only begin from the time of registration on the PPSR, instead of the earlier date allowable under the transitional provisions if you register before the end of 31 January 2014.

If a security interest loses its ‘perfected’ status its priority ranking will not be preserved. This means that another person with a security interest in the same collateral with a higher priority ranking (for example, a secured party who registered during the transitional period) will be paid out ahead of you in the event that grantor (the person who hires or buys the goods, or borrows money) defaults.
There is also the risk that if the grantor enters bankruptcy or insolvency and a security interest has not been perfected at relevant times, the security holder will lose their security interest altogether.

Now is effectively the last opportunity to secure any interest in personal property that was created before 30 January 2012.

W G Stark 
Hayden Starke Chambers

Strategic Use of Guarantees

I have just presented a paper entitled "Strategic Use of Guarantees" to Leo Cussen's annual Property Law conference.

The paper covered some introductory background about guarantees and why they lead to so much litigation, some disaster stories, numerous bases upon which the courts of equity have relied in refusing to enforce guarantees, an examination of some recent case law (including the effect of the Personal Property Securities Act, 2009, and the potential impact of both the National Credit Code and the High Court appeal in the Willmott Forests litigation about the disclaimer of leases by a liquidator), when and how a guarantee can be called up, and some tips to avoid common drafting mistakes.

A copy of all of the seminar papers from the intensive (including mine) are available from Leo Cussen Institute (web site: http://www.leocussen.vic.edu.au/ )

W G Stark
Hayden Starke Chambers

Personal Property Securities Act - who will win a priority dispute between an equipment financier and a general financier?

In Albarran and Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors, [2013] NSWSC 852, BC201310524 the New South Wales Supreme Court had to determine a priority dispute between an equipment financier and a general finance company.

Background

In this case, the finance company (“Fast Financial Solutions”) had an agreement which provided it with security over all of the assets of a civil engineering company (“Maiden”).  The equipment owner, Queensland Excavation Services Pty Ltd (“QES”), leased that equipment to Maiden under an oral agreement.

After default by Maiden, Fast Financial Solutions appointed receivers over Maiden’s assets, including the equipment owned by QES. QES demanded the release of its equipment.

Brereton J determined:

1.  Maiden, as lessee, had an interest in the equipment sufficient to allow it to grant a security interest to Fast Financial Solutions. Section 19(5) of the Personal Property Securities Act (PPSA) provides that a grantor of a security interest has rights in goods that are leased to it under a PPS lease when it obtains possession of those goods.  Brereton J confirmed that those rights of a lessee are not limited to possessory rights under the PPS lease, but include proprietary rights.  In reaching this conclusion, His Honour relied on New Zealand and Canadian case law.

2. While QES was the owner of some of the equipment it also held a security interest (the lease agreements) in the equipment in accordance with the provisions of the PPSA.

Having determined that both QES and Fast Financial Solutions had security interests in the equipment, the court had to determine which interest took priority?  In considering that question, the court noted that the fact that QES was the lawful owner of some of the equipment was of no significance. In essence, the decision confirmed that the nemo dat rule – that no one can give what they do not own – is no longer relevant.

The only facts of significance in determining the dispute were whether and when each security interest was perfected.  In the case of the security interest of QES, the fact that QES had not registered its interest on the Northern Territory motor vehicle registry (which is a 'transitional register' within the provisions of the PPSA) meant that it did not obtain the benefit of deemed perfection otherwise applicable to transitional security interests.  This aspect of the decision highlights a gap in the transitional arrangements.

As a result, the court found that the perfected security interest of Fast Financial Solutions had priority over the unperfected security interest of QES.

The failure by QES to register its security interest under the PPSA also meant that the security interest was not perfected when Maiden went into administration.  As a consequence, by virtue of section 267(2) of the PPSA, the security interest of QES vested in Maiden upon it entering into administration.  The practical effect is that QES no longer had any interest in the equipment and Maiden held it subject only to the perfected interest of Fast Financial Solutions.

In those circumstances, the perfected security interest of Fast Financial Solutions had priority over the unperfected security interest of QES in the equipment.

Conclusion

Whilst the decision was not unexpected, in view of the game-changing nature of the PPSA provisions, it highlights the need for anyone who wishes to retain their existing security to take appropriate steps to register their interest on the PPS Register before the expiry of the transitional arrangements in January 2014.   

The judgment also highlights the fundamental rule changes brought about by the PPSA:  It can operate to deprive a lessor of their ownership of goods where the lease gives rise to a PPSA security interest and the owner fails to perfect that interest in accordance with the PPSA. The PPSA vesting rules are vastly different to the personal property laws that previously applied. 

W G Stark

Hayden Starke Chambers

Personal Property Security Law Conference 2013

"Personal Property Security Law" Local and Global Perspectives, 20-21 February 2013, Adelaide

I have been informed that Adelaide Law School at the University of Adelaide is holding a two-day conference on Personal Property Security Law, with a range of leading international and national experts from practice, academia and government. The SA State Attorney-General will open the conference prior to the keynote address by leading commercial author Professor Sir Roy Goode.



The programme can be viewed and bookings made at: http://www.law.adelaide.edu.au/events/ppsa


W G Stark

Hayden Starke Chambers