While the subject matter of the case (Caterpillar construction vehicles) may not be as glamorous as the stallion “Generous” in Waller v New Zealand Bloodstock Ltd 1, the New South Wales Supreme Court in Maiden Civil (P&E) Pty Ltd 2  (Maiden) has followed New Zealand and Canadian authorities in a recent case, ruling that a properly perfected security interest registered on the Personal Property Securities Register (PPSR) will take priority over a third party who has legal title in the property.

The outcome of Maiden is not surprising. However, it serves as a timely reminder to ensure that all security interests (including any relevant leased or bailed property) are correctly registered on the PPSR.

In Maiden, three Caterpillar construction vehicles were leased to Maiden Civil (P&E) Pty Ltd (In Receivership) (Maiden) by Queensland Excavation Services Pty Ltd (QES) prior to the commencement of the Personal Property Securities Act 2009 (PPSA).  The equipment was not registered on the relevant Northern Territory motor vehicles register (so there was no migrated transitional registration on the PPSR) and QES did not subsequently register its interest on the PPSR after 30 January 2012. 

Another financier, Fast Financial Solutions Pty Ltd (Fast), later provided finance to Maiden and correctly registered its security interest.  When Fast appointed receivers and managers over Maiden a few months later, QES claimed that the Caterpillar vehicles should not form part of Fast’s security pool because it still had legal title to the vehicles.

The Court held that the Caterpillar vehicles did form part of Fast’s security pool.  Some relevant considerations include:

  • QES had not registered on the relevant Northern Territory motor vehicles register, so the security interest did not migrate to the PPSR.
  • QES had not registered its interest on the PPSR (whether migrated, transitionalor non-transitional), nor had it otherwise perfected its rights under the PPSA. Therefore, QES held an ‘unperfected’ security interest.
  • Even though QES terminated the lease, the PPSA provides that property subject to an unperfected security interest will vest in the grantor (Maiden) on the appointment of an administrator or liquidator.  That is, QES’ rights “vested” in Maiden, such that QES lost its rights to the goods.  This is commonly referred to as the “vesting rule”. 
  • While the PPSA does contain some exclusions which protect certain interests (including some leased goods) from the vesting rule, those exclusions did not apply because the lease did not have a defined term. 
  • Terminating a lease and taking possession of the property will not provide adequate protection for a lessor.   

  • Title to the goods, although a consideration, was not determinative.  Here, there was one party with an unperfected interest, and one party with a perfected interest.  It does not matter under the PPSA if one of those parties had retained legal title to the goods. The PPSA provides that the perfected party will have priority, even if its interest was registered after the unperfected interest was created.

If you are aware of equipment or goods that have been bailed or leased (even in intercompany arrangements, or prior to the commencement of the PPSA) we suggest that you get urgent advice as to whether that interest should be registered on the PPSR. Failure to do so means a risk of losing your assets.