The decision in White & Anor v Spiers Earthworks Pty Ltd (SE) & Anor has examined the vesting provisions contained within the Personal Property Securities Act 2009 (Cth) (PPSA) and confirmed their effect where one party asserts to have an unperfected Security Interest at the time of an event of insolvency according to section 267 (2) of the PPSA.
The Receivers sought a declaration that the assets subject to a hire agreement had vested in BEM Equipment Pty Ltd (BEM) immediately prior to the appointment of the voluntary administrators and BEM is now entitled to possession of them against SE, subject to the National Australia Bank (NAB) security interest.
SE opposed this application and sought to allege that the assets had not vested in SE on one of two grounds:
- section 267 and 332 and regulation 9.2 do not apply to vest SE’s interest in the Hire Assets because that would result in an acquisition of property from SE otherwise than on just terms; and
- failure to register the hire agreement under state law (prior to the existence of the PPSA) does not effect the validity or enforceability of their security interest because of section 261 of the PPSA.
SE agreed to sell its business to BEM in 2010. BEM then entered in to a Hire Agreement with SE, wherein SE agreed to hire to BEM vehicles necessary for the conduct of the business which BEM had acquired.
In February 2011 BEM granted a fixed and floating charge to the NAB as security for amounts owing to NAB. Voluntary administrators were appointed to BEM on 24 July 2013 and NAB appointed Receivers on 31 July 2013, prior to the commencement of the PPSA.
SE did not register the Hire Agreement on a register maintained to monitor such agreements pursuant to the Chattel Securities Act 1987 (WA) (CS Act). Nor did SE cause financing statements to be registered on the PPS Register after the commencement of the PPSA.
Analysis – Not on just terms
Section 252B of the PPSA was inserted to remove any doubt about the constitutionality of the PPSA in that it states that provisions of the PPSA do not operate where the provision would result in acquisition of property other than on just terms.
The Court held that the vesting of SE’s security interest:
- did not effect an acquisition of property within the meaning of that phrase according to section 51 (xxxi) of the Constitution;
- were actually part of and incidental to a statutory scheme for the adjustment of competing rights and liabilities amongst creditors of an insolvent company; and
- despite the inclusion of section 252B, that particular section does not apply in this case and the interests of SE, in this case, vest in the BEM.
Analysis – Section 261 of PPSA
Section 261 of the PPSA provides for the interaction of the Act with other laws of Australia and states that the failure to register the security interest under an applicable state law does not effect the validity, enforceability or priority of the security interest under the PPSA where both of those laws require the grantor to register an interest.
SE argued because of this section, the PPSA could not operate to affect the security interest because SE had failed to register the security interest under the CS Act.
This argument was rejected by the Court as Personal Property Securities (Consequential Repeals and Amendments) Act 2011 (Cth) amended the CS Act so as the registration provisions under it had no effect from the time the PPSA started to apply to the security interest.
The Court held the interest of SE to have vested in BEM immediately prior to the appointment of the voluntary administrators on 24 July 2012 and made orders that the assets subject to the security interest had vested in the Company subject to the interest of the NAB.
Relevance to insolvency practitioners
While this decision appears to tell us that the effect of section 267 is as it was intended you will need to watch this space as the matter is on appeal.
Should the decision be upheld, insolvency practitioners will be well advised to continue assessing the effect of security interests on appointment and to deal carefully with allegations of parties who claim goods but cannot point to perfected security interests that support their claim.