Personal Properties Securities Act Update

Since the introduction of the Personal Properties Securities Act 2009 (Cth) (‘PPSA’) there has been very little case law on how to interpret the PPSA which has left Australian courts to look to case law in other jurisdictions such as New Zealand and Canada.

More recently, however there have been some Australian decisions that have provided some clarification concerning the interpretation of the PPSA provisions.

In the decision of Pozzebon (Trustee) v Australian Gaming and Entertainment Ltd, in the matter of Australian Gaming and Entertainment Ltd (in liq) [2014] FCA 1034, the Court confirmed the position on the need to perfect a security interest through registration or otherwise within the strict time limits under the Corporations Act 2001 (Cth) (‘the Act’).

In this case, the security interest was not registered until approximately five months after the money was exchanged and the security agreement executed. The date the agreement was signed was considered the day the security interest ‘attached’ to the personal property. Seven days after registration, administrators were appointed to the Company. Liquidators were subsequently appointed.

The Act provides that if a company is placed into administration or liquidation and registration did not occur within twenty business days of attachment and the Company is placed into administration or liquidation within six months of attachment, the interest in the property vests in the Company that is in administration or liquidation.

Accordingly, the failure to register the security interest within the strict time limits or perfect the interest by other means resulted in the security interest being unenforceable against the liquidator and the personal property vesting in the insolvent state.

It is important that secured parties register their security interests as soon as possible to avoid potentially damaging consequences.

In the decision of Re Arcabi Pty Ltd (Receivers and Managers Appointed) (in liq) [2014] WASC 310, the Court considered whether the PPSA applied to goods being held on a bailment or consignment basis by Arcabi Pty Ltd (“Arcabi”), a company in receivership and liquidation. The Receivers sought directions from the Court as to whether the goods subject to bailment or consignment could be returned to the customers.

Arcabi operated a business of selling and storing rare coins and bank notes.

Bailment

The storage arrangements between Arcabi and its customers gave rise to a bailment. A bailment is when a “bailor” (the customer) delivers certain goods to a “bailee” (Arcabi) upon the promise that they will be delivered back to the bailor or dealt with in a specific way.

The Court held that the bailment arrangements were not subject to the PPSA because they did not constitute PPS leases and did not secure payment or performance of an obligation and therefore were not in substance security interests under the PPSA. The Court considered, in reaching its decision, the following:

a) there was no evidence that the goods would vest in Arcabi on the expiry of the bailments;
b) Arcabi was under no obligation to purchase the goods from the customers;
c) the term of the bailment arrangement was not likely to be for the major part of the economic life of the goods;
d) payments under the bailment arrangement did not equate to the capital cost of the goods;
e) there was no evidence that the bailors (customers) were regularly engaged in the business of bailing goods and therefore no suggestion that the bailment constituted a PPS lease.

Consignment

A consignment will be considered a security interest under the PPSA only if it secures payment or performance of an obligation or is deemed a “commercial consignment”. A consignment is when the owner of the goods (customer) sends the goods to another party (Arcabi) on the understanding that the other party will sell such goods to a third party and return the money to the owner.

In this case, it was held that the consignment did not constitute a security interest or a commercial consignment because:

a) the consignment did not secure a debt due or an obligation;
b) Arcabi and its customers did not deal in rare coins and notes in the ordinary course of business and therefore would not be considered commercial consignment.

Accordingly, the Court held that the customers did not hold a security interest and that the goods should be returned to them.

Should you have any questions or require further information about these decisions our experienced team of PPSR specialists would be more than happy to discuss or assist you with your enquiries.