11 JULY 2013

An Australian court has finally handed down arguably the first substantive decision in relation to the Personal Property Securities Act (“PPSA”) which commenced in January 2012. Specifically, the Supreme Court of New South Wales found that the owner of equipment, which was on hire to another person, lost its ownership rights in the equipment to a third party receiver, as a result of the owner failing to register its interest as owner of the equipment on the Personal Property Securities Register.

While the court’s interpretation of the relevant provisions of the PPSA is not surprising, it confirms the risk to owners of losing their interest in property to third parties and the need to be aware of the steps necessary to obtain all relevant protection for property interests.

The decision concerned an arrangement whereby Queensland Excavation Services Pty Ltd (Owner) leased a number of construction vehicles to Maiden Civil (P&E) Pty Ltd (Hirer) for use in a commercial project. The Hirer then obtained finance with Fast Financial Solutions Pty Ltd (Financier) where it granted the Financier a broad security over all of the Hirer’s assets, which included the vehicles leased from the Owner.

The Hirer ultimately defaulted under its finance arrangement with the Financier and receivers were appointed.

Since the Owner and the Financier had competing claims in respect of their interest in the vehicles, legal proceedings were commenced to determine whose interest prevailed. Critical to the court’s decision was that while the Financier had been prudent to register its security interest under the finance arrangement, the Owner had not taken the steps necessary to register its interest as owner of the vehicles.

Whereas prior to the commencement of the PPSA the owner of equipment on lease to another was generally able to rely upon its ownership rights as protection for its interest, in certain circumstances those ownership rights are now demoted to that of a “security interest” only, which needs to be registered under the PPSA to protect the owner’s rights.

In the recent case before the court, it was found that not only did the Owner fail to register its interest in the vehicles but it also failed to have in place a written agreement for the lease arrangement, which is another general requirement to obtain protection under the PPSA.

The Owner argued that its interest was a “transitionary interest” under the PPSA (meaning an interest that was created before the start date of the PPSA) which are interests that are generally protected for two years from commencement of the PPSA (i.e. until 31 December 2014). That argument ultimately failed, however, because a transitionary interest only receives temporary protection during this “grace period” if it meets the registration requirements in place before the start date of the PPSA. It was found that the Owner was in fact required to register its interest under the vehicle registration system in place in the Northern Territory prior to the start date of the PPSA.

The recent decision serves as a timely reminder for businesses to review their commercial arrangements to ensure written agreements are in place and to take all necessary steps to register interests where required, including arrangements made before the start date of the PPSA.

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Contact Partner: Michael Coe
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