Most Read Contributor in Australia, September 2016
Recently, the Supreme Court of New South Wales handed down the
first major Australian decision regarding the Personal Property
Securities Act 2009 (PPSA). This decision
highlights the dramatic way in which the PPSA has affected
ownership under Australian law, and serves as a warning to
contractors who have left security interests unperfected.
In this case an equipment hire company obtained finance to
purchase several items of caterpillar excavators and loaders (the
equipment). The company then leased the equipment
to a contractor for use in civil construction work in the Northern
Territory, before the Personal Property Securities Register (PPSR)
commenced. Neither the company nor its financiers registered their
security interests in the equipment on the Northern Territory motor
vehicle register prior to the PPSR commencement date, or with the
PPSR following the commencement date.
The hire company entered into a facility agreement with a new
financier and gave that financier a general security agreement over
its assets. As the financier had a security interest over the hire
company's assets, which was subsequently registered and
perfected with the PPSR. The hire company went into administration
and then liquidation, with the financier appointing managers and
receivers to the hire company's assets.
The policy of the PPSA is that competing security interests must
be resolved according to the principles of priority. Under the
PPSA, a perfected security interest has priority over an
unperfected security interest.
Here, though the hire company did not have the protection
afforded to a transitional security until 31 January 2014, as it
did not register the equipment with the Northern Territory Register
prior to the commencement of the PPSR, or with the PPSR following
its commencement. This meant that the financier's perfected
security interest in the equipment had priority – despite the
hire company paying for and having title to the equipment.
The financier was therefore entitled to keep the equipment as
its own property.
What does this mean for Contractors?
This decision highlights the need to ensure all security
interests are registered to protect title to property. The decision
also highlights the vulnerable position many contractors may find
themselves in, should they allow another party to possess their
property and fail to register their interests on the PPSR.
If you did not bother to register an interest in a state-based
register, waiting instead for the PPSR to commence you need to
register on the PPSR without delay. If you do not it could result
in you losing your property.
As a footnote the financier was entitled to demand payment under
a personal guarantee and mortgage provided by one of the directors
of the hire company, to satisfy the debts owing to them. If the
hire company had registered its security interest with the Northern
Territory Register, or the PPSR once it commenced, the director
would not have been personally liable for the money it lost in the
subsequent ownership battle.
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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