Beware! If you are in the business of leasing personal property or providing goods on a retention of title basis under franchise agreements, manufacture and distribution agreements or otherwise – complacency regarding the effect of the New Zealand and Australian security interest regimes is not an option.
While not an unexpected result, the decision in the Australian case of 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 serves as a timely reminder that in certain circumstances, entities that have an interest in personal property that is less than ownership can still grant security interests to third parties. Parties that are in the business of leasing personal property or providing goods on a retention of title basis must, therefore, register their interests on the Personal Property and Securities Register in accordance with the provisions of the PPSA in Australia and New Zealand if they are to avoid the risk of losing their priority to the goods.
The case related to a priority dispute between a finance company (“Financial Solutions”) with a perfected general security agreement over a civil engineering company’s (“Maiden”) assets and an equipment owner (“QES”) with an interest in equipment it had leased to Maiden. Financial Solutions subsequently appointed receivers over Maiden’s assets, including the equipment. QES demanded the release of the leased equipment.
The Court determined first that Maiden had an interest in the equipment sufficient to allow it to grant a security interest to Financing Solutions. It then determined that while QES was the owner of the equipment it also held a security interest (the lease agreements) in the equipment and the PPSA priority rules applied. While the lease had commenced prior to the enactment of the Australian PPSA, QES had not taken the opportunity to register its security interest on an available transitional register. QES could not, therefore, avail itself of the temporary protections afforded under the Australian PPSA’s transitional provisions. As a consequence, QES’ unperfected security interest in the equipment was trumped by Financing Solutions’ perfected security interest.
What is the take away message of this story? A little bit of proactivity can save you from sorrow.
- Review your agreements covering both Australia and New Zealand;
- Know what you are providing and how you are providing it under those agreements;
- Where appropriate, ensure you have financing statements registered on the Australian and New Zealand PPSRs.