In Re Arcabi Pty Limited (Receivers & Managers Appointed) (in liquidation)  WASC 310, the Supreme Court of Western Australia provided useful clarity on the Personal Property Securities Act 2009 (PPSA) concepts of “PPS Leases”, “bailment” and “commercial consignment” arrangements in the context of providing directions to Receivers.
Receivers and Liquidators were appointed to Arcabi Pty Limited (Receivers and Managers appointed) (in liquidation) (Arcabi), which operated a business of storing and selling rare coins and notes for its customers. Much of the property stored on the premises was not owned by Arcabi – it was stored for safekeeping or held by Arcabi for the purpose of sale on consignment.
The Receivers formed the view that the storage and consignment arrangements were not “security interests” under the PPSA and the goods could be returned to the relevant owners. However, the Receivers were concerned that the arrangements could bring the customers’ goods within the scope of the PPSA, which would mean that:
- the customers’ security interest in the collateral – the stored and consignment goods – would not have been perfected;
- the unperfected interests would vest in Arcabi upon the appointment of liquidators; and
- the Bank would be entitled to priority to the stored and consignment goods over the customers pursuant to its security.
Accordingly, the Receivers sought directions from the Court on the following issues:
- bailment – was the storage arrangement between Arcabi and its customers a bailment that required registration? (A bailment is where a bailor delivers goods to the bailee upon the promise that they will be delivered back to the bailor or dealt with in a specified manner);
- consignment – was the consignment arrangement subject to the PPSA?
- indemnity and lien – were the Receivers entitled to claim an indemnity from and lien over the customers’ goods, even though those goods were not necessarily subject to their appointor’s security?
Master Sanderson held that neither the storage (goods held on bailment) nor the consignment arrangements were subject to the PPSA and the Receivers were entitled to an indemnity from and lien over the assets stored with Arcabi.
Bailment – A bailment arrangement can amount to a security interest which requires registration where:
- it in substance, secures payment or performance or an obligation; or
- it meets the requirements of a “PPS Lease” under the PPSA.
The Court held that the storage arrangements did not secure payment or performance of an obligation, so were not subject to the PPSA. In reaching this view, the Court looked at a number of factors: the goods would not vest in Arcabi on the expiry of the bailment; Arcabi did not have an obligation to purchase the goods; the term of the arrangement was not likely to be for the major part of the economic life of the goods, and finally, the nominal payment for the bailment did not equate to the capital costs of the goods.
The Court also held that the bailment arrangement did not constitute a “PPS Lease”. The Court confirmed that a bailment will be deemed a “PPS Lease” if:
- it is for a term of more than one year, or is for an indefinite term or for a term of up to one year that is automatically renewable or renewed at the option of one of the parties;
- the bailor is regularly engaged in the business of bailing goods; and
- the bailee provides value for possession of the underlying collateral;
The Court found that there was no “PPS Lease” as the customers of Arcabi were not “regularly engaged in the business of bailing goods”.
Consignment – the PPSA would apply if a consignment arrangement either secures payment or performance of an obligation or is a “commercial consignment” under the PPSA
Here the Court found that the consignment arrangement:
- did not secure performance of an obligation because Arcabi owed no relevant obligation to the customers – it was only obliged to pay customers if and when the goods were sold to a third party purchaser; and
- was not a “commercial consignment” under the PPSA because Arcabi and its customers did not deal in rare coins and notes “in the ordinary course of business”. Further, the Court found that Arcabi was generally known to its creditors as being in the business of selling the goods of others (thereby falling within an exception to “commercial consignments” under the PPSA).
Indemnity and lien – the Receivers were entitled to an indemnity from and lien over the assets stored with Arcabi for the work done to identify and distinguish that property from the property over which they were appointed. This extended to costs incurred in the preservation of the assets such as insurance.
This decision provides some clarification to provisions in the PPSA concerning “bailments”, “PPS Leases” and “commercial consignments”. The decision also provides a good example of Receivers seeking directions from the Court to clarify issues under the PPSA.