Written by Zachary Gazzard, Solicitor
First major Australian case regarding competing security interests and the Personal Property Security Register (PPSR) confirms that Creditors/Businesses who fail to perfect their security interests are likely to lose their security
Maiden Civil (P&E) Pty Ltd v Queensland Excavation Services Pty Ltd & Ors [2013] NSWSC 852
This case involved the lease of excavators and loaders. Queensland Excavation Services Pty Ltd (“QES”) had lent these items of machinery to Maiden Civil (P&E) Pty Ltd (“Maiden”).
QES and Maiden had no written lease agreement, but the equipment had been in Maiden’s possession for over a year and QES periodically invoiced Maiden for the use of the equipment. QES had not perfected a security interest by registration under the PPSA or by any other means.
Maiden had separately granted security over all of its assets to Fast Financial Solutions Pty Ltd (“Fast”) under a general security agreement (“GSA”). Fast perfected its security interest under the GSA by registration under the PPSA. Maiden encountered financial difficulty and Fast appointed receivers under its GSA. QES then cancelled the leases and asserted primary rights to the equipment as owners. Fast’s receivers claimed primary rights to the equipment as sole perfected security interest holder.
It was held the receivers were entitled to possession of the equipment.
Given the PPSR regime is very recent, this is one of the few Australian decisions involving competing security interests and the PPSR to date. Case authorities from New Zealand where the regime has been implemented for a longer time, are likely to be followed in Australia.
A notable case in New Zealand which is a further example of the importance of registration on the PPSR was Waller v New Zealand Bloodstock Limited [2006] 3 NZLR 629.
In that case, New Zealand Bloodstock leased a stallion to Glenmorgan Farm for a three year period. The lease term specified that the title in the stallion remained with New Zealand Bloodstock. This interest created a PPS Lease which is a deemed security interest under the New Zealand regime. New Zealand Bloodstock did not register its interest.
A few years prior, Glenmorgan Farm had granted security over “all its present and future assets” to a creditor, S.H. Lock (NZ) Limited. S.H. Lock registered its security interest in Glenmorgan Farm’s assets. Glenmorgan Farm went on to become insolvent. Despite New Zealand Bloodstock owning the Stallion, as they had not registered their security interest, it lost priority over the Stallion and New Zealand Bloodstock lost their entire investment of $2 million by not registering their security interests.
Another recent Australian case for which a decision is yet to be handed down involves the Receivers of the Forge Group taking action in the NSW Supreme Court and attempting to obtain control of $50 million worth of gas turbines that APR Energy (the owners) leased to the Forge Group. APR Engery failed to secure with a PPSA registered charge. A decision is expected later this year.
How do the changes to the Personal Security Act affect your business?
The recent implementation of the Personal Property Securities Act 2009 (Cth) (“PPS Act“) in Australia brought important changes to the law. It is essential that your new and existing agreements which create security interests are registered following the commencement of the operation of the PPS Act. Under the new regime you need to register new and existing security interests on the Personal Property Security Register (PPSR) within strict timeframes. If you fail to ‘perfect’ your security interest, by registering on the PPSR, your security may not be enforceable or your priority may be lost.
Do you have a Security Interest?
A security interest is an interest in personal property provided for by a transaction that in substance, secures payment or performance of an obligation. Section 12 of the PPS Act defines what a Security Interest is. Common security interests include liens, chattel mortgages, charges and retention of title clauses in contracts (ROT). Other security interests include financing or operational leases of personal property for more a period of more than 12 months or 90 days for motor vehicles or aircraft, hire purchase agreements and consignment agreements.
You should refer to Section 12 of the PPS Act if you are unsure whether your interest is a security interest, registrable under the PPS Act.
http://www.austlii.edu.au/au/legis/cth/consol_act/ppsa2009356/s12.html
How do I register and how much does it cost?
There is a national online register, known as the Personal Property Security Register (PPSR). You don’t have to set up an account. You may create registrations in the PPS Register as an account customer or a casual user.
Registration should occur within 20 business days of the signing of any security agreement by your customers. To view prices involved with registration, and to register your security interests, click here.
Can I search a business or individual to whom I am providing credit to find out if other Creditors have security interests registered against that business or individual?
Yes. A comprehensive register of all PPSR registrations can be searched online. To search the PPSR click here.
Where will my security interest Rank as against other Creditors of a business or individual?
Under the PPS Act, suppliers using retention of title clauses have a purchase money security interest (“PMSI”). A PMSI interest elevates the interest of a secured party to a higher status relative to other interests, such as general or “all assets” charges held by the Bank for example. Unperfected security interests only rank in order of attachment, and a perfected interest will defeat an unperfected security interest. Perfected security interests rank in priority of time.
How should I word my commercial credit terms so that I can register a security interest?
Your terms of trade should include a general security agreement and a retention of title clause.
If you are unsure whether your terms are sufficient or would like assistance with re-wording your commercial credit terms, to ensure that your terms create a recognised security interest which can be registered on the PPSR, Uther Webster & Evans can assist you.
