At DibbsBarker, we understand that the impending PPSA legislation is a daunting prospect for many. For this reason, we have implemented a weekly alert which will use case studies and solutions to highlight possible issues and answer commonly asked questions. The first of the PPSA Alert series covers a priority dispute between the owner of a leased boat and the general financier.
Question:
Abbottbank has a General Security Agreement over the assets and undertakings of The Real Julia Pty Ltd (RJ) which is registered on the PPS Register. Sometime later, RJ leases a boat that it uses to ferry passengers offshore under a 36 month lease agreement from Bowen Pty Ltd. Under the lease agreement the boat remains the property of Bowen, and RJ is required to pay 36 equal monthly lease installments. Bowen does not register its security interest which is created by the lease agreement on the PPS Register, even though it is entitled to register it as a PMSI. RJ defaults under the lease and fails to make a monthly payment. Bowen takes back the boat and shortly afterwards Abbottbank appoints Mr Morrison as Receiver to RJ.
Who has the better claim to the boat for enforcement purposes?
Answer:
Why, Abbottbank's Receiver, Mr Morrison, has the better claim. Abbottbank "perfected" its interest by registration and Bowen did not. Two fundamental principles are in play. Firstly, Bowen cannot address the failure to perfect its interest by taking possession of the boat after the default, even though contractually it owns the vessel. Secondly, Abbottbank's perfected security interest trumps Bowen's unperfected interest.
The lesson: the PPSA pays no mind to title. Under PPSA, perfection is everything.
For more information on the PPSA, please contact a member of the DibbsBarker PPSA Team.
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.