Australia: Paved with good retentions: Enforcement, accessions and retention of title clauses under the Personal Property Securities Act 2009 (Cth)

Last Updated: 3 March 2013
Article by Robert Ross

The anniversary of the Personal Property Securities Act's (PPSA) enactment has come and gone. One year on, there is a wealth of information available on the use of the Personal Property Securities Register (PPSR) on its website.

An average of nearly 25,000 PPSR searches are now conducted every business day. One area where less guidance is available, so far, is in the procedure for enforcing security interests. This has particular application for a seller under a retention of title agreement wishing to repossess their goods by reason of non-payment.

The enforcement provisions of the PPSA are technical and prescriptive. They do not require a party to start legal proceedings. Where a default under a security agreement occurs, the security holder can start the enforcement process by issuing notices in the form prescribed under the PPSA. Typically, the enforcement process will involve issuing a notice to the relevant parties of the security holder's intention to seize the collateral (ie the property in which the security interest is held). A separate notice is then issued to say what the security holder intends to do with the collateral, ie either sell it or "retain" it.

Where collateral has been affixed or installed to other collateral and retains a separate and distinct identity, the PPSA calls this form of collateral "accessions" and they becomes subject to special enforcement requirements. One example of this in practice could be the construction of a coffee kiosk in the open plan of a shopping centre. If the builder constructs the kiosk and supplies the materials under a conditional sale (ie retention of title) agreement and is then left unpaid, what remedies do they have to dismantle the structure they have created and repossess the materials?

To begin with, the builder must ensure that the security interest it has under the conditional sale agreement has been "perfected", ie has been properly registered on the PPSR.

The rights of the builder to the "accessions" must then be balanced against those of any competing party with an interest in the whole of the structure (such as the coffee shop leaseholder in our example). In this scenario, there is a special form of notice that must be given to the leaseholder at least 10 business days before removing the accessions. A party with an interest in the stall, other than the grantor (in this case, a third party, who perhaps has a security interest in other accessions, ie lighting or plumbing fittings to the stall), can prevent the removal by paying out the monetary value of the accessions or the outstanding amounts owed under the security agreement. The party removing the accessions also has an obligation to avoid unnecessary damage or inconvenience in removing the accessions and is liable to reimburse another secured party for any damage caused.

However, there may be many other complicating factors. What happens if the shop's lease is sold or assigned to a third party? Is the builder's perfected interest binding on a subsequent leaseholder? What if the leaseholder refuses to agree to the removal, would the consent of the head lessor or shopping centre owner be sufficient? Ultimately, these questions will require both a careful analysis of legal principle together with the technical know-how as to the most practicable way of dismantling the collateral while minimising disruption to others. Carefully drafted clauses in a security agreement can provide secured parties with various advantages in the enforcement process. In the next 12 - 18 months we can expect to see such clauses tested in court.

We are already seeing the application of well established legal principles to the new legislation. Arguments about whether something is a fixture or not are very common in disputes between landlord and tenant. In a recent case in the Supreme Court of New South Wales, In the matter of Cancer Care Institute of Australia Ltd (administrator appointed) [2013] NSWSC 37, the suppliers of two pieces of medical equipment worth $10 million found themselves in a dispute with the owners and developers of a medical facility, the CCIA, which had been placed into administration. The suppliers had perfected their security interest by registration, but the owners of the facility argued that the equipment had become fixtures, and therefore part of the land, and therefore outside the operation of the PPSA.

The equipment consisted of two large Clinac iX linear accelerators, purchased by the CCIA on credit. Fortunately for the suppliers of the equipment, the court was prepared to find that it could be removed from the land, albeit only with considerable cost and difficulty, so the accelerators were not fixtures. Had the decision gone the other way, the accelerators would have been treated as part of the land, and therefore subject to the various mortgages and securities over the land. In that case, the supplier's options for recovery would have been significantly more limited.

With the right advice there are a number of things that can be done to make enforcement of a security interest easier, particularly in relation to retention of title clauses, but the critical first step is to have them registered properly. The general awareness in the business community of the existence and effect of the PPSR still seems to be remarkably low. Whether you are feeling it or not, the PPSA is starting to bite. The PPSR doesn't have to be a problem, and in fact it can be a big help, if you know what it is and how to use it.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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