Many lessons have been learnt since the introduction of the PPSA on 30 January 2012 – particularly, in an insolvency context with the collapse of WOW Sight and Sound (for consumers/small businesses) and Hastie Group (for insolvency practitioners).
This Redmail examines the first Australian Court judgment (“Maiden Civil”) regarding the PPSA and:
- Key lessons regarding priority/ownership under the PPSA; and
- Key steps to take as the 2 year transitional period under the PPSA ends on 31 January 2014.
The Maiden Civil case
In mid 2010, Queensland Excavation Services Pty Ltd (“QES”) purchased 3 “Caterpillar” wheel loaders and excavators from Hastings Deerings (the “Caterpillars”). The purchase of the Caterpillars was funded by external finance.
The Caterpillars were then leased by QES to Maiden Civil (P&E) Pty Ltd (“Maiden”). The leases were informal only – that is, no written agreement was entered into between QES and Maiden. However, the arrangement was that Maiden would pay the finance deposits and ongoing financing costs. QES never registered its interest in the Caterpillars.
In March 2012, Maiden sought and obtained short-term finance from Fast Financial Solutions Pty Ltd (“Fast Financial”). A “Loan Agreement and General Security Deed” (“Deed”) was entered into, under which Maiden granted Fast Financial a security interest over all of its present and after-acquired property, which relevantly included the leased Caterpillars. Fast Financial subsequently registered its security interest on the PPSR.
In July 2012, Maiden defaulted under the Deed and Fast Financial appointed receivers and managers (“Receivers”) over all of the company’s assets including the Caterpillars.
Key issues and the result
The Court considered the following questions, and arrived at the ensuing answers, regarding ownership and priority:
- Was QES or Maiden the true owner of the Caterpillars? Maiden was the true owner of 1 of the Caterpillars, given the finance had been paid out in full and Maiden had then acquired that particular Caterpillar. QES was the true of 2 of the Caterpillars, given these were still subject to finance.
- If QES was the true owner, is its security interest superior to that of Fast Financial? Fast Financial had been granted a security interest in the Caterpillars under the Deed. As that interest was registered on the PPSR, Fast Financial had a perfected security interest in the Caterpillars (that is, a security interest which can be enforceable against third parties and in insolvency contexts).
While the leases between QES and Maiden were informal and not in writing:
- They met the requirements of being a “PPS Lease” under the PPSA. This gave rise to a deemed security interest under the PPSA, but given they were not registered, QES only had an unperfected security interest in the Caterpillars; and
- The leases were entered into in 2010 and before the commencement of PPSA. This gave rise to a “transitional security interest” which gives the benefit of temporary perfection (that is, it maintains its pre-PPSA priority against post PPSA perfected security interests) during the 2 year transitional period ending 31 January 2014.
However, as these leases weren’t even registered on the transitional registers (that is, the Northern Territory Register of Interests in Motor Vehicles and Other Goods Register) QES did not receive the benefit of the transitional provisions and again, only held an unperfected security interest in the Caterpillars.
The Court determined that Fast Financial’s perfected security interest took priority over QES’ unperfected security interest, despite the fact that QES was owner of 2 of the Caterpillars. As a result, the Court ordered that all 3 Caterpillars be delivered to the Receivers of Maiden Civil.
Lessons to be learnt
The Maiden Civil case demonstrates that:
- Priority of security interest under the PPSA trumps legal title. A perfected security interest will defeat an unperfected security interest, notwithstanding the latter is the owner of the property.
- There is a danger in presuming you have temporary perfection of your “transitional security interest”. This is particularly the case if you failed to register your personal property on a transitional register prior to 30 January 2012.
- It is paramount to register your security interest to protect your legal rights and avoid losing priority or ownership rights in the property, particularly in lease or retention of title situations.
31 January 2014 deadline
As noted above, the 2 year transitional period ends on 31 January 2014. Despite cases such as Maiden Civil, we are finding that many people still do not realise how they are affected by the PPSA, or the risks they face once the 2 year transitional period ends.
To quickly recap, the PPSA has a very broad scope and applies to:
- Almost all forms of tangible and intangible property such as goods, motor vehicles, inventory, shares, investment instruments, licenses, intellectual property;
- Many industries, but particularly the financing, manufacturing, wholesale and retail sectors; and
- Many commercial transactions such as retention of title arrangements, consignments, certain leases and bailments.
If you deal with property or do business fitting the above description, it is highly likely the PPSA applies to you in some way, shape or form. We recommend that you seek immediate advice about your security interest, and how best to protect your legal position under the PPSA.
How we can help
We can assist with navigating through the remaining 4 months of the transition period by:
- Conducting an audit and review of all of your PPSA arrangements;
- Perfecting your security interest prior to 31 January 2014 – typically, by registration on the PPSR; and
- Advising you in relation to any priority disputes that may arise with other secured parties.
For further assistance on matters relating to the PPSA, getting your security interests registered or commercial disputes please contact Brisbane lawyers Gavin Barnes (Director) or Stephen Harvey (Consultant) of our office on (07) 3223 6100 or email email@example.com.
 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. The judgment can be accessed via this link – http://www.caselaw.nsw.gov.au/action/pjudg?jgmtid=165631.