When the Personal Property Security Act 2009 was introduced in January 2012, it impacted significantly on the way security interests were taken over personal property. It also increased the onus on secured parties such as financiers and business operators in taking steps to protect those security interests.
While a transitional period was allowed for pre existing security interests, that transitional period ends in January 2014. There are now less than five months left for you to perfect any pre existing security interests. If you do not take action to perfect such interests, your interest may be deemed inferior to another party's interests in the same property if there is a dispute, or it could be lost completely in the event of the Grantor's insolvency.
The recent NSW Supreme Court case of Maiden Civil (P&E) Pty Ltd1 ('Maiden') has highlighted five very important lessons on the PPSA2:
- reduce your security agreements to writing so they can be enforceable against third parties;
- register to perfect your security interest with the PPSR (there are other ways to perfect, but registration is the most common);
- if relying on the transitional provisions, which provide for 24 months temporary protection from 30 January 2012, make sure you in fact have a true transitional interest and register before the 24 months runs out on 30 January 2014;
- you will be denied temporary protection for a transitional interest if your security interest was capable of registration on a pre- PPSA register but was not.
- the owner of a leased asset under a lease that has not been perfected will lose in priority to another secured party with a perfected security interest in the same asset.
The facts of Maiden in a nutshell
- Queensland Excavation Services Pty Ltd (QES) purchased three Caterpillar construction vehicles under finance in 2010 (a wheel loader - the '930', a 30 tonne excavator – the '330' and a 20 tonne excavator – the '320').
- The Caterpillars were all located in the Northern Territory.
- QES then leased the Caterpillars to Maiden and paid on invoice. The lease was not in writing, however Maiden remained in uninterrupted possession for more than a year.
- In March 2011, Maiden paid to QES the funds to discharge the finance on the 320 and no further invoices were issued to Maiden for the 320.
- In May 2012, Maiden obtained finance from Fast Financial Solutions Pty Ltd ('Fast') and gave security over its assets including the Caterpillars.
- Due to default by Maiden, Fast appointed Receiver-Managers ('Receivers') under their loan documents. The 320 was in the possession of a third party who claimed a 'lien' over the 930.
- QES terminated its lease with Maiden, re-took possession of the 930 and 330 and hired them out to another party.
- The Receivers sought an order for delivery up of each caterpillar to them.
- On 27 August 2012, Maiden went into Administration and subsequent to that, liquidation.
The Judgment in a nutshell
- Maiden was the 'true owner' of the 320 (based on evidence that was the intention between the parties) and QES was the 'true owner' of the 930 and 330.
- Fast's perfected security interests in the 930 and 330 have priority over QES' unperfected security interest. That unperfected security interest was a PPS lease.
- Even if it was found QES had a transitional security interest, having been entered into prior to the start of PPSA, the protection could not be claimed because QES' interest as lessor was registrable on a transitional register but was not actually registered.
- On commencement of administration and/or winding up of Maiden, QES' unperfected security interests in the Caterpillar vested in Maiden. An exception to this could not be claimed by QES, for the serial numbered Caterpillars, because the lease exceeded a year in duration.
- Maiden held the Caterpillars subject to the perfected security interest of Fast.
- Fast could enforce its security interest in relation to the Caterpillars under the terms of its loan agreement with Maiden.
- There was insufficient evidence to the claim of a third party holding a lien or other security interest in the 930.
- The Receivers were entitled to possession of the Caterpillars.
The End Result
Maiden provides a detailed analysis of various provisions of the PPSA and how they work together. The Court referred to several New Zealand and Canadian cases in also providing assistance in interpreting the meaning of the PPSA. This was a case of determining priorities under the PPSA and the Court carefully worked through the various competing security interests to reach its conclusion; that the Receivers for Fast, which held a registered, and therefore perfected security interest, was entitled to the Caterpillars.
As the end of the transitional period approaches, this case is also a timely reminder to perfect any transitional interests before time is up.
1In 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  NSWSC852
2Personal Property Securities Act 2009 (Cth)
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.