What is new?
Since the Personal Property Securities Act 2009 (Cth) (‘PPSA’) came into effect, we have relied mostly on New Zealand and Canadian case law to understand how the Act might be applied in Australia (as the legislation here was largely based on the statutory schemes in those countries). Slowly the issues are starting to be litigated in Australia and we have some interesting case law to consider. In 3 recent cases, a seemingly registered party has lost the benefit of its security:
In the first case, a mechanic registered a security interest to protect his repairer’s lien when he was not paid for repairing a truck. The Tribunal found that the repair should have been done under warranty and ordered the mechanic to remove his security interest from the Register.
In the second case, a bank held a security interest over a truck. A related party of the company that owned the truck also registered a security interest in competition with the bank. The Court found that the related party’s security interest was bogus and fundamentally flawed and ordered the party to remove it.
In the third case, a company that leased construction equipment was defeated by a liquidator because it missed the timeframes within which to register its security interest. The owner of the equipment lost it to the liquidator and instead became an unsecured creditor for the amount owing under the lease.
In 2 other recent cases, the court found that security interests did not exist:
- Various companies supplied white goods to a retailer under retention of title (ROT) agreements, who on-sold those goods to retail customers as well as to its subsidiary for retail sale. The suppliers registered their security interest in the goods against the first retailer as there was no contractual relationship between the suppliers and the subsidiary. When liquidators were appointed to the retailer and its subsidiary, they had to decide who owned the goods left onsite at both premises – the suppliers under their ROT agreements, or the bank as a secured creditor with an all-covering security agreement, or the retail customers who had part-paid for the goods? The Court decided that all the suppliers kept their security interest in the goods under layby, otherwise most of the goods sold had been ‘taken free’ by customers.
- Receivers were appointed by a bank to a company which operated a business of storing and selling rare coins and notes for its customers. Much of the property on the company’s premises was not owned by it – it was stored for safekeeping for investors or was onsite by investors for sale on consignment. The receivers had to decide whether the storage and consignment arrangements were bailments and consignments that required registration by the investors under the PPSA. Otherwise the bank would have been entitled to sell the property to pay the company’s debt. Fortunately for the investors, the Court found that the PPSA did not apply to their arrangements.
What are the implications?
By now commercial lenders should be well versed in how to protect their interest in secured property. Lessors of property, sellers on consignment, and companies with complex structures whereby equipment is owned in one entity and used in another, are still missing out for failing to properly protect their interest. So too are suppliers missing out by having general contract documents that do not properly detail the intentions and arrangements between the parties.
What should you do?
Each scenario is different. If you are a lender, lessor or have a business structure with multiple entities, call us for expert advice now. We can assess the PPSA risk facing your organisation and help you to implement steps to protect yourself from another party’s insolvency.
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