Clayton Utz Insights
04 July 2013
By Alan Maguire and Greta Burkett.
Owners of goods who lease or hire them out must consider if they have "PPS leases" or "in substance security interests" and, if so, register those interests on the PPS register.
The first significant judgment relating to the Personal Property Securities Act 2009 (Cth) (PPSA) has recently been handed down in the New South Wales Supreme Court. It has confirmed that if an owner of goods leases them to someone else and that lease creates a "PPS lease" under the PPSA, then the owner:
- cannot rely on its title to protect its interest in the goods. Instead, the owner must register its interest on the PPS register. Failure to do so may result in the owner losing the goods to other creditors; and
- will not have the benefit of the "24 month" temporary perfection given to "transitional security interests" if the lease was registrable but not registered on a "transitional register".
The judgment refers to and follows similar case law in Canada and New Zealand. It is a reminder to all owners who lease or hire goods to others, to take steps to protect their interest in those goods or risk losing them (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  NSWSC 852).
The equipment lease and security interest
The case involved pieces of caterpillar machinery – a wheel loader and two excavators. Each piece of equipment (the Equipment) had a VIN (a vehicle identification number), could be driven and was powered by its own engine.
In 2010, Queensland Excavation Services Pty Ltd & Ors (QES) purchased the Equipment using third party finance. QES then leased the Equipment to Maiden Civil (P&E) Pty Ltd (Maiden). That arrangement (the QES Lease) was not in writing. Maiden was, however, given possession of the Equipment, used it in its civil construction work in the Northern Territory and made periodical payments for the Equipment to QES. QES did not register its interest in the Equipment on the Northern Territory Register of Interests in Motor Vehicles and Other Goods (the NT Register) before 30 January 2012 or, after that date, on the PPS register.
In March 2012, Maiden borrowed money from Fast Financial Solutions Pty Ltd (Fast Financial). It granted Fast Financial a security interest over all of its assets including the Equipment. Fast Financial registered that interest on the PPS register.
In July 2012, Fast Financial appointed receivers to Maiden. QES terminated the QES Lease. The receivers of Maiden claimed possession of the Equipment. Maiden subsequently went into voluntary administration and then liquidation.
Why the judge found in favour of the receivers
Justice Brereton decided in favour of the receivers. He concluded that the QES Lease was a "PPS Lease" and was therefore a security interest in favour of QES. It was, however, questionable whether or not it was enforceable under section 20 of the PPSA because it was not in writing.
The QES Lease was a "transitional security interest". It was in force before 30 January 2012. Those security interests are temporarily perfected under the PPSA for 24 months from that date. That temporary perfection does not, however, apply if any security interest was registrable under a "transitional" register but was not registered. The NT Register was such a register and the QES Lease had not been registered on it. QES had also not registered the QES Lease on the PPS register after 30 January 2012. It was therefore not perfected.
Maiden had sufficient rights and interests in the Equipment to grant a security interest over it in favour of Fast Financial. This finding was supported by New Zealand and Canadian case law. That security interest had attached, was enforceable and had been perfected by registration on the PPS register.
QES and Fast Financial had competing security interests over the Equipment. Fast Financial's security interest prevailed because:
- unlike QES's security interest, it was perfected. Under the PPSA, perfected security interests have priority over unperfected security interests. It was irrelevant that QES owned the Equipment; and
- QES's security interest had in fact "vested" in Maiden upon Maiden's administration. This meant that QES no longer had an interest in the Equipment.
The receivers of Maiden were therefore entitled to possession of the Equipment and could utilise it to satisfy the debt owed to Fast Financial.
Lessons to be learnt
The case is a stark reminder to owners of goods who lease or hire them out:
- to consider if those arrangements may be "PPS leases" or "in substance security interests"; and
- if they are, to take steps to register those interests on the PPS register.
If those owners have not done so because they think that they have 24 months "temporary perfection", they may be mistaken. That perfection will not apply if the security interest was registrable on a transitional register but was not registered before 30 January 2012. If a security interest is unperfected it may be defeated and the owner may lose its goods (even though it owns them).
It is also an indication that when considering the PPSA, the courts may take into account the case law of other PPS jurisdictions.
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.
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