The Personal Property Securities Act 2009 (Cth) (PPSA) created a new regime for security interests over personal property in Australia. The introduction of the PPSA has resulted in bailments and consignments being required to be registered on the Personal Property Securities Register in order to qualify for possible protection.
WHEN DOES THE PPSA APPLY TO BAILMENTS?
The PPSA will apply if a bailment is deemed to be a “PPS lease” or if it “in substance secures the payment or performance of an obligation”. Note that the PPSA only applies where the bailee provides “value” (so a bailor who has not charged a fee need not be concerned with these laws).
A PPS lease is a lease or bailment of goods for:
- a term of more than one year; or
- an indefinite term; or
- a term of up to one year that is automatically renewable if the total of all terms may exceed one year.
If the bailor is not regularly engaged in the business of bailing goods then these provisions will not apply. However, other provisions of the PPSA may apply to enable interests to be protected.
Some examples of common bailments scenarios include:
- leaving goods with a repair service to hold and fix (such as a damaged television or computer);
- leaving goods with a third party for security purposes (such as a safety deposit box at a bank); and
- leaving goods for the performance of a service (such as the parking of a car).
WHEN DOES THE PPSA APPLY TO CONSIGNMENTS?
The PPSA will apply to a consignment arrangement if the transaction in substance secures the payment or performance of an obligation or if the transaction is classified as a commercial consignment. A “commercial consignment” is where:
- the consignor retains an interest in the goods delivered to the consignee; and
- the consignor delivered the goods to the consignee for the purpose of sale, lease or other disposal; and
- the consignor and consignee both deal in goods of that kind in the ordinary course of business.
COURT TREATMENT OF SECURITY INTERESTS FOR BAILMENTS AND CONSIGNMENTS
A recent decision in the Supreme Court of Western Australia clarifies the application of the PPSA to consignments and bailments and illustrates some of the problems which can arise for owners of property in these situations.
A business (Arcabi) was involved in storing rare coins and banks notes (Goods) owned by third parties (bailments) and selling such Goods for others on consignment. The Goods were at Arcabi’s premises when Arcabi went into liquidation. Westpac had a perfected general security interest over Arcabi’s present and future assets.
The court was required to decide whether the owners of the goods were entitled to their property in Arcabi’s possession or whether such property would form part of Arcabi’s general assets to be made available to creditors.
DECISION ON BAILMENT ARRANGEMENTS
The court determined that the bailments did not ‘in substance’ secure the payment or performance of an obligation as there was no suggestion that the Goods would ever vest in Arcabi, the arrangement was not likely to be for the major part of the economic life of the goods (as the goods had an indefinite life), and the bailment fee did not equal the capital cost of the Goods.
The bailment arrangements were not PPS leases either, as the investors were not considered to regularly engage in the business of bailing goods (collecting rare coins was merely a hobby and not a business for them).
DECISION ON CONSIGNMENT ARRANGEMENTS
The court also determined that the PPSA did not apply to the consignments. There was no persuasive evidence that Arcabi ever had title to the consigned Goods.Title remained with the investors until the Goods were sold, the Goods were specifically identifiable where stored, and the consignments themselves were arrangements of mutual benefit. Arcabi would receive compensation and the investors would receive proceeds without having to sell the Goods themselves. The Goods were left at the premises for Arcabi to sell, they were not given as security.
The arrangements were not commercial consignments because the consignor was not dealing with goods of that kind in the ordinary course of business (again, the consignors were not operating a regular business selling rare coins, it was generally a series of one-off transactions).
The result of the court’s conclusions was that no security interests under the PPSA were created between the investors and Arcabi. Therefore, there was no need for them to be perfected, and the owners could get the Goods back (as they never lost title). The lesson is that not all transactions give rise to “security interests under the PPSA.
HOW YOU CAN PROTECT YOUR INTERESTS
- If you regularly engage in the bailment of goods for value or regularly offer goods for sale on consignment, develop a practice of registering your interests in each relevant transaction.
- Be aware of the consequences of a business in possession of your personal property falling insolvent.
- If in doubt, obtain legal advice regarding the applicability of the PPSA and the priority of your security interest.