On 14 November 2014, his Honour Justice Sifris handed down his decision in Carrafa, Goutzos & Lofthouse (as liquidators of Relux Commercial Pty Ltd (in liq)) & Anor v Doka Formwork Pty Ltd  VSC 570. The question in the case was whether security interests in formwork arising under the Personal Property Securities Act 2009 (Cth) (PPSA) had vested in Relux upon it being placed into administration.
Relux rented formwork from Doka. The liquidators submitted that each lease:
- was instigated by a signed written order by Relux describing the required formwork needed from Doka;
- commenced either on the date the formwork left Doka’s warehouse or the date Relux took delivery of it;
- was for an indefinite term; and
- incorporated Doka’s terms & conditions which were printed on the back of each invoice rendered by Doka and were adopted or accepted by Relux by its conduct.
As outlined in the table below, there were three relevant delivery dates for the formwork in January, February and March 2014.
On 20 February 2014, a security interest was registered by Doka on the Personal Property Securities Register, which claimed an interest in commercial property held by Relux described as ‘equipment rental and sales especially in formwork’.
On 7 April 2014, Messrs Carrafa, Goutzos & Lofthous were appointed joint and several administrators of Relux. At a creditors’ meeting on 16 May 2014, Relux was wound up and the administrators were appointed as liquidators.
The liquidators applied to the Supreme Court for declaratory relief about who, as between Relux and Doka, had the superior interest in the formwork.
The vesting rule and application to this case
Section 588FL of the Corporations Act 2001 (Cth) (the Corporations Act) sets out the circumstances where a security interest granted by a company will vest in the grantor upon it being wound up, having an administrator appointed or entering into a deed of company arrangement. The section covers a PPSA security interest if it:
- is perfected by registration (it does not apply to security interests perfected by possession or control); and
- is enforceable against third parties;
and the registration time for the collateral is after the latest of the following times:
- 6 months before the 'critical time';
- 20 business days after the security interest was created, or the 'critical time' (whichever is earlier); or
- such later time as the court orders.
In considering whether s588FL had application in the case at hand, Justice Sifris looked at whether the interests held in the formwork were PPSA security interests within the meaning of the Corporations Act. His Honour found that each lease was a 'PPS lease' under s 13 of the PPSA because:
- Doka was regularly engaged in the business of leasing formwork; and
- under Doka's terms and conditions, the leases were for an indefinite term (see s 13(1)(b) of the PPSA).
After analysing the relevant provisions of the PPSA, his Honour was satisfied that Doka held PPSA security interests within the meaning of the Corporations Act.
The 'critical time' for the purpose of s588FL was found to be 7 April 2014, which is when Relux’ administration began.
The following table highlights the relevant key dates and the relevant findings of the decision about whether the security interest vested in Relux.
Click here to view the table.
The first and second leases were created on dates earlier than the critical time (7 April 2014) and later than 6 months before the critical time (7 October 2013). They had to be registered within 20 business days of creation. The first security interest was registered one day late, which meant it vested in Relux. However, the second did not vest as it was registered in time.
As for the third lease, whilst the 20 business day period expired on 11 April 2014, this was later than the critical time, with the result that the deadline for registration was brought forward to the critical time of 7 April 2014. As the registration date was 20 February 2014, that interest did not vest in Relux.
Take out from the decision
His Honour acknowledged that the vesting provisions in the Corporations Act may seem harsh, but pointed out that there are reasons for their existence. Section 588FL was introduced by the Personal Property Securities (Corporations and Other Amendments) Act 2010. That legislation repealed Chapter 2K of the Corporations Act. However, as stated in the Explanatory Memorandum to which his Honour had regard, the effect of the old sections 266 and 267 were "retained to prevent security interests being granted fraudulently with knowledge of an imminent administration, liquidation or deed of company arrangement…..".
This case is a reminder to secured parties to ensure security interests granted by companies are registered within time; this requires being familiar with the provisions of the Corporations Act to ensure the correct deadline(s) for registration can be determined and met.
Finally, it is important to note that, as with most rules governing PPSA security interests, there are exceptions to the vesting rule found in s588FL. Section 588FN of the Corporations Act sets out those PPSA interests to which the vesting rule will not apply. It will not apply to a PPSA security interest provided for by any of the following transactions, if the interest does not secure the payment or performance of an obligation:
- a transfer of an account or chattel paper;
- a PPS lease, if paragraph (e) (serial numbered goods) of the definition of PPS lease in subsection 13(1) of the PPSA applies to the lease, and none of paragraphs (a) to (d) of that definition applies to the lease; or
- a commercial consignment.