Australia: An Australian First: Receivers and Perfection under the Personal Property Securities Act

Last Updated: 27 August 2013
Article by Miles Anderson and Jenna Scott

The recent decision of the Supreme Court of New South Wales 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 [2013] NSWSC 852 ("the Case") is the first court decision to give practical confirmation of the operation of priority rules in the Personal Property Securities Act 2009 ("PPSA") and displaces the well established nemo dat rule (that one cannot sell what they don't own).

The case comes as a warning to all owners who lease or hire goods to others, to bankers, financiers and to all those who sell goods on a retention of title basis, that they must properly register their interest on the Personal Property Securities Register ("PPSR") if they want to avoid the risk of losing their goods.

What happened?

Maiden Civil P&E Pty Limited ("Maiden") could not raise finance to acquire machinery so an entity owned by a friend of the principal of Maiden, Queensland Excavation Services Pty Ltd ("QES"), purchased caterpillar machinery and leased it to Maiden. Maiden subsequently raised an amount of $300,000 from Fast Financial Solutions Pty Ltd ("FFS") and granted a general security interest over all of its assets to secure this debt. Maiden defaulted on the loan and FFS appointed Receivers and Managers over the assets of Maiden.

The Receivers and Managers argued that FFS had a security interest in the machinery which took priority over any interest of QES and that even if QES established that it owned the machinery, the operation of the PPSA meant that this did not give them a superior right to FFS.

Due to the nature of the arrangement there was some argument as to whether QES actually owned the machines. However, the Court held that at least in the case of two of the machines, that QES was the owner. This ultimately did not assist QES as the Court further held that the Receivers and Managers had a priority security interest in the machines.

The Decision

The Receivers and Managers prevailed because their interest was perfeted by registration under the PPSA and the interest of QES, while earlier in time, was unperfected (as they had failed to register) and therefore did not have priority. This entitled the Receivers and Managers of Maiden to possession of the machinery to satisfy the debt owed to FFS.

Three other important points were also raised by this case.

  1. Following the appointment of the Receivers and Managers, Maiden went into administration. The Court held that because QES's interest had not been registered that Maiden's Administrators became entitled to the machines (subject to the interests of FFS). What this means is that even if there were surplus funds available after the machines had been sold and FFS's debt had been repaid, that those funds would go to the Administrator rather than to QES.
  2. QES's interest arose prior to the 30 January 2012 start date of the PPSA and it was argued by QES that it should have had the benefit of 'temporary perfection' under the two year transitional provisions. This argument was rejected by the Court which held that while QES had a transitional security interest, that interest could have been registered on a transitional register in the Northern Territory (where the machines were located). As the PPSA does not provide temporary perfection for transitional security interests which could have been registered on a pre PPSA register that was migrated to the PPSA, QES failed in this argument.
  3. There were two other parties in the case being another entity and an individual who had possession of one of the machines. They claimed to have a lien or security interest over the machine in respect of monies owed for work performed. There was no admissible evidence in relation to these claims but what the Court did say is that even if they did have a security interest, it was not perfected under the PPSA and therefore could not prevail over the interests of FFS or the Administrator. Under the PPSA possession of property can create a security interest. However, in this case their possession of the machine did not assist them as they had "seized" it from QES and a security interest cannot be perfected under the PPSA by seizing property.

What to take away

All owners of goods who lease or hire them out should consider whether those arrangements may be PPS Leases or in substance a security interest, and if they are, take steps to register their intersts on the PPSR without delay.

Those relying upon the 24 month temporary perfection should ensure that the secuirty interest was not capable of being registered on a transitional register prior to 30 January 2012. If it was, they will have lost the benefit of any protection (even if it was not standard commercial practice to register such an arrangement). The safest approach is to register such interests on the PPSA as transitional interests, regardless of whether or not you believe you have temporary perfection. Also, temporary perfection will be of no assistance after 30 January 2014.

The case further demonstrates that repossessing equipment before Receivers are appointed may not help as this is likely to be treated as a seizure of goods and therefore will not rectify the fact that a security interest has not been perfected.

The Case pinpoints the vulnerable position both property owners and financiers may find themselves in if they lease goods or provide goods under a bailment and do not register an interest on the PPSR.

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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Miles Anderson
Jenna Scott
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