They say practice makes perfect.
Well, it is now clear that people with security interests, such as owners, lessors and financiers, need to make perfection their practice, a recent NSW Supreme Court decision about the Personal Property Securities Act (PPSA) has confirmed.
Security interest holders who don't register their interests properly on the Personal Property Securities Register (PPSR) do so at their own risk and may not enjoy the priority they thought they had.
The PPSA tried to bring 'under one roof' previous State and Territory based registers (including encumbered vehicle serial number registers, as in this case) as well as certain previously unregistrable and unregistered interests, such as the interests of owners under hire purchase, consignment and retention of title arrangements. The PPSA contains detailed transitional provisions to deal with interests migrated from these other registers to the PPSR and to deal with previously unregistrable interests.
Further, the PPSA deemed certain arrangements to entail security interests, including (again, as in this case) lessors' interests under certain leases of goods (PPS leases), such as leases of more than 90 days of serial numbered vehicles.
The PPSA established a system of priorities for security interests in personal property, with priority determined by whether the interest is 'perfected' – either by timely and correct registration on the PPSR or by relevant property (collateral) being in the possession or control of the secured party.
The rule of thumb is that a perfected security interest will prevail over an unperfected security interest.
SO WHAT HAPPENED?
This case, In the matter of Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors  NSWSC 852, involved certain Caterpillar construction vehicles located in the Northern Territory leased by Queensland Excavation Services Pty Ltd (QES) to Maiden Civil (P&E) Pty Ltd (Maiden) in 2010 prior to the commencement of the PPSA (on 30 January 2012).
QES' purchase of the vehicles was funded by financial institutions. The interests of QES and its financiers were not registered on the NT register of vehicles or on the PPSR (once it commenced operation). Meanwhile, in May 2012 Maiden entered into a secured facility with a financier, including execution of a general security agreement (GSA) over Maiden's assets including these vehicles, and the financier registered its interest under that GSA on the PPSR. Following defaults by Maiden later that year, that financier had the receivers and managers appointed.
In summary, the various interests in the vehicles and their priorities fell out as follows:
- QES was a lessor under PPS lease in respect of the vehicles but did not register its interest in the vehicles on the NT register.
- Maiden's financier also had an interest in the same vehicles under the GSA but did register its interest on the PPSR.
- QES' interest was registrable on the NT register, and had it been registered it may have enjoyed transitional protection (although the decision did not resolve this definitively).
- Because QES' interest as lessor was not registered, Maiden's financier's subsequent but perfected (registered) interest in the same goods took priority over QES' unperfected interest which then vested in Maiden as lessee, subject only to its financier's perfected interest.
- The question is not who owns or has title to the goods, but whose interest in the goods has priority under the PPSA regime.
WHAT THIS MEANS FOR LESSORS, OWNERS, FINANCIERS AND OTHER SECURITY INTEREST HOLDERS
In our view, the decision reflects exactly what is to be expected under the PPSA regime, the case is a useful reminder of the need to perfect an interest (typically by registration) in order to obtain priority as against other interests in the same collateral. Subject only to limited transitional arrangements and certain limited exceptions for particular interests under other laws, it is the PPSR which will determine the priority of interests in personal property and therefore registration (as the typical mode of perfection) of a security interest is critical.
TRANSITIONAL PROTECTION – NOT ONLY LIMITED, BUT THE END IS NIGH
The case also highlights how much confusion there has been and how much confusion remains around the transitional provisions of the PPSA. Whilst some holders of security interests have successfully been able to rely on the benefit of transitional priority arrangements without the need to register on the PPSA, others have mistakenly either tried to register interests that they don't have to or failed to register interests that should have been registered and lost out as a result, as in this case.
With the imminent expiry of the 2 year transition-in period, the need for all transitional interest holders to get their houses in order is becoming more pressing. But that's another story...
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