The recent WA Supreme Court decision in White v Spiers Earthworks Pty Ltd  WASC 139, highlights the consequences of not registering a security interest under the Personal Property Securities Act 2009 (PPSA) when a company becomes insolvent.
The case also provides guidance about certain PPSA savings provisions, the treatment of transitional security interests and the primacy of PPSA over pre-PPSA legislation.
In 2010, BEM Equipment Pty Ltd (Company) as hirer and the defendants as owners entered into a Plant Hire Agreement (Hire Agreement) in relation to a number of items of personal property including motor vehicles, trailers and other equipment which were to be used in the course of the Company’s earthmoving works business (Hire Assets).
The Company appointed voluntary administrators on 24 July 2013. On 31 July 2013, the plaintiffs (Receivers) were appointed as receivers and managers of the Company under a financier’s fixed and floating charge.
Prior to the commencement of the PPSA on 30 January 2012, the defendants did not register their interest in the Hire Assets under the Chattel Securities Act 1987 (WA) (CS Act) on the REVS register.
Prior to the appointment of the administrators, the defendants did not register a security interest in relation to the Hire Assets on the Personal Property Security Register (PPSR).
The defendants terminated the Hire Agreement and claimed they were entitled to possession of the Hire Assets as owner.
The Receivers issued proceedings seeking a declaration from the Court that:
- the Hire Assets vested in the Company by virtue of section 267(2) PPSA; and
- the Company holds the Hire Assets subject to the financier’s charge.
Under section 267(2) PPSA, a security interest vests in the grantor (in this case, the Company) if a specified event occurs, such as appointment of an administrator, and a security interest granted by the grantor is unperfected at the relevant time (in this case, the commencement of the administration).
The defendants’ interest in the Hire Assets vested in the Company under section 267 PPSA.
Existence of a security interest
The defendants’ interest in the Hire Assets was a security interest because the Hire Agreement gave rise “in substance” to a security interest, and also because the Hire Agreement was a PPS Lease and therefore a “deemed security interest”.
Perfection of the security interest
There was no perfection by registration under the PPSA, therefore the defendant’s security interest would only be perfected if it was perfected as a transitional security interest.
Le Miere J decided that the transitional arrangements under the PPSA (which deem perfection for a period of 24 months from 30 January 2012) did not apply.
Although the defendants’ interest in the Hire Assets is a transitional security interest, the interest was not perfected because the defendants’ interest could have been, but was not, registered under the CS Act on the REVS register (a transitional register under s330 PPSA).
The defendants claimed their failure to register under the CS Act does not affect the validity of their security interest because of section 261 PPSA, which provides that failure to register a security interest under the law of a state does not affect the validity priority or enforceability of a security interest.
Le Miere J rejected the defendants’ claim that section 261 PPSA applied because:
- the PPSA started to apply in relation to transitional security agreements and security interests at the registration time; and
- amendments to the CS Act made by the Personal Property Securities (Consequential Repeals and Amendments) Act 2011 (Cth) mean that provisions of the CS Act which required or enabled the defendants to register their interest in registrable goods have no effect at and after the registration commencement time.
No unjust acquisition of property
The defendants argued that extinguishment of the defendants ownership of the Hire Assets under section 267 would result in an acquisition of property from the defendants otherwise than on just terms contrary to section 252 PPSA.
The Court rejected this argument, holding that the vesting in the company of the defendants’ interests in the Hire Assets is not an acquisition of property, but rather an adjustment of the competing rights of the secured party on the one hand, and the unsecured creditors of the Company on the other hand in relation to the Hire Assets.
This case not only serves as a reminder to creditors of the importance of ensuring that security interests (including transitional interests) are registered, it also highlights issues and competing interests for insolvency practitioners and financiers to consider when dealing with unperfected security interests.