If you have previously been relying on the transitional provisions of the Personal Properties Securities Act 2009 (Cth) (PPSA) and you have not yet perfected your security interest by registration, a recent Victorian Supreme Court decision confirms that the impact of failing to take adequate steps to protect security interests can be severe.
The decision in Central Cleaning Supplies (Aust) Pty Ltd v Elkerton  VSC 61 serves as a timely reminder that parties are no longer able to rely on the transitional provisions of the PPSA to protect their title in a security interest arising prior to 30 January 2012. Temporary protections afforded to transitional security interests under the PPSA expired on 31 January 2014.
Central Cleaning Supplies (Aust) Pty Ltd (Central Cleaning) supplied cleaning equipment and services to Swan Services Pty Ltd (Swan Services). The parties signed a credit application agreement in September 2009, which stated that Central Cleaning's standard terms and conditions applied (which did not include a retention of title clause). Central Cleaning subsequently supplied goods and equipment to Swan Services by way of invoices. The invoices issued by Central Cleaning included a retention of title clause.
Following commencement of the PPSA, Central Cleaning did not register any security interests on the PPS Register in respect of its goods and equipment that were supplied to Swan Services by way of invoice after 30 January 2012. When Swan Services went into administration (and subsequently liquidation) in May 2013, the liquidators determined that Central Cleaning's failure to perfect its security interest in the goods and equipment meant those security interests had vested in Swan Services upon its insolvency. As a result of failing to register, the goods and equipment, although owned by Central Cleaning, became available to Swan Services' creditors as a whole and Central Cleaning was regulated to the status of an unsecured creditor. Central Cleaning appealed the decision of the liquidator to the Supreme Court of Victoria.
The court found that due to the fact there was no retention of title clause in the credit application agreement, and that the invoices operated as individual contracts (separate to the credit application agreement), the credit application agreement was not sufficient to amount to a transitional security agreement under the PPSA.
Accordingly, a failure to have a transitional security agreement in place meant that Central Cleaning had no security interest in the goods and equipment which could rely on the transitional provisions under the PPSA. Further, Central Cleaning's failure to perfect its security interest in goods and equipment arising as a result of retention of title provisions in invoices delivered after 30 January 2012 lead to the court upholding the liquidator's decision.
The conclusion that may be drawn, based on the facts of this case, is that where there is no evidence that a security interest under a transitional security agreement existed prior to 30 January 2012, a party will not be able to rely on the protection afforded by the transitional provisions to the PPSA in the event that a counterparty experienced an administration or insolvency event prior to 31 January 2014. The decision does provide some useful guidance on what trading terms may satisfy the requirements of a 'transitional security interest'. However, as the transitional period under the PPSA ended on 31 January 2014, the transitional provisions will no longer afford protection to those transitional security agreements that are not perfected (either by registration of the security interest on the PPS Register or one of the other methods of perfection).
For those entities still grappling to comprehend the impact of the PPSA on their business operations, especially entities with business operations involving:
- the financing of assets or equipment;
- leasing or hiring vehicles, aircraft, plant or equipment;
- supplying goods on a retention of title basis; or
- property (including inventory and goods) stored in shops or warehouses belonging to third parties,
the Central Cleaning decision is a timely reminder to seek professional advice.