It has taken close to 18 months but we have finally seen Australia’s first priority dispute play out in court as a result of the Personal Property Securities Act (PPSA).
In this particular case, the owner of assets failed to establish priority over a financier who held an all assets security interest.
The decision 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 & Ors is consistent with the intent of the PPSA and demonstrates why owners of assets that part with possession need to register their interest on the PPSR.
In mid-2010, Maiden Civil (P&E) Pty Ltd (Maiden) entered into an informal arrangement with Queensland Excavation Services (QES) for use of 3 Caterpillar construction vehicles (Caterpillars) that QES had purchased with finance from Esanda Finance and Westpac. The arrangement was such that Maiden paid the deposits and financing costs of the Caterpillars to QES, who then passed on this cost, minus a 10% spread.
QES, Esanda Finance and Westpac did not register their interests in the Caterpillars on the Northern Territory register of motor vehicles or on the PPSR when the PPSA commenced.
In May 2012, Maiden approached Fast Financial Solutions Pty Ltd (Fast) seeking short term finance. As part of these financing arrangements, a general security deed was granted by Maiden and this document listed all of Maiden’s property, including the Caterpillars. Fast perfected its security interest by registration on the PPSR.
In July 2012, Maiden defaulted and Fast appointed the receivers and managers to the company’s assets including the Caterpillars.
On 27 August 2012 Maiden went into administration followed by liquidation and issues of security interest priorities arose.
The receivers sought from the court:
- a declaration that Fast’s security interest under the PPSA has priority over QES; and
- an order for deliver up of the Caterpillars.
Security interests in the Caterpillars
The court determined that:
- Fast held a security interest in the Caterpillars by virtue of its general security deed.
- Although the leasing agreement between Maiden and QES was not in writing, the facts establish that the arrangement could be considered a PPS Lease and therefore QES held a security interest in two of the three Caterpillars as owners/lessors.
- QES' interest was a transitional security interest.
The priority dispute – but I own it?
QES, as owner and lessor of the Caterpillars, contended that its security interest in the Caterpillars is entitled to priority as a transitional security interest ahead of Fast’s security interest.
The court found that because the collateral and interest was of a class capable of being registered under the Northern Territory Registration of Interests in Motor Vehicle and Other Goods Act 2008 (one of the transitional registers) the temporary perfection provided to transitional security interests by virtue of s 322(3) did not apply to QES’ security interest.
As a result, QES’s security interest was not afforded the protections under the transitional provisions and the court held that:
- by operation of s55(3), Fast’s registered security interest had priority over QES’s unregistered security interest; and
- by operation of s267, QES’s security interest vested in Maiden and therefore the Caterpillars were considered assets of Maiden which were to be placed in the possession of the receivers and managers of Maiden.
This case reflects the intent of the PPSA and:
- demonstrates how the PPSA can adversely impact on owners or financiers of assets;
- reinforces why owners or financiers of assets need to register their interests on the PPSR at the time they part with possession;
- demonstrates that Australian courts will look to New Zealand and Canadian authorities to support a decision;
- provides a timely reminder that you only have until 1 February 2014 to take advantage of the temporary protections under the PPSA that are afforded to transitional security interests.
Where to from here?
Take steps to protect yourself – if you need to be registered make sure that you are!