A recent decision of the Supreme Court of Western Australia highlights the importance of properly registering security interests under the Personal Property Securities Act 2009 (Cth) (the Act).
In White v Spiers Earthworks Pty Ltd  WASC 139, earth moving equipment was hired from Spiers Earthworks Pty Ltd (Spiers) to BEM Equipment Pty Ltd (BEM) under hire purchase agreements signed in 2010. In 2011, BEM granted a fixed and floating charge to National Australia Bank (the Bank). In 2013, voluntary administrators were appointed to BEM, followed shortly thereafter by the appointment of receivers by the Bank.
As at the date of the administrators’ appointment, Spiers had not registered the hire purchase agreements as security interests against BEM on the register maintained under the Act. Nor had the agreements been registered on a chattels register maintained under the Chattels Securities Act 1987 (WA) prior to the Act commencing. The receivers therefore contended that Spiers’ interest in the equipment vested in BEM upon appointment of the administrators under section 267 of the Act.
Section 267 of the Act applies upon the occurrence of certain events, including an order for winding up, the appointment of an administrator(s), the execution of a deed of company arrangement, a sequestration order being made against a person under the Bankruptcy Act 1966, or a person otherwise becoming a bankrupt. Under section 267(1)(b), security interests granted by the body corporate, company or bankrupt which are unperfected at the relevant time vest in the grantor, subject to certain limited exceptions.
Justice Le Miere of the Supreme Court of Western Australia found in this case that:
- Section 267 applied because the hire purchase agreement was a “security interest” within the meaning of the Act and was unperfected when the administration commenced;
- The interest of Spiers in the equipment was a transitional security interest. Section 322(1) of the Act deems transitional security interests generally to be perfected for a period of 24 months commencing immediately before the registration commencement time (and therefore had application in 2013, the time relevant to this application).
- However, the interest of Spiers did not obtain section 322 protection because the interest was registrable on a register existing prior to the Act commencing – being the chattels register in WA. Spiers did not therefore obtain the benefit of transitional protection.
Spiers also contended that the vesting of its interest would result in the acquisition of property on unjust terms, essentially raising an argument as to the constitutionality of certain provisions of the Act. This argument was rejected.
The result was that the equipment vested in the grantor company, and thereby became property subject to the Bank’s charge, despite the equipment being owned by Spiers.
Had Spiers’ interest not been registrable on any pre PPS register, it is likely the outcome would have been different as it would have attained transitional protection. As the transitional period has now ended, secured parties will not obtain the benefit of transitional protection going forward, irrespective of their interests.
The case does highlight however the importance of registration and that this takes precedence over a party’s title to goods. Whilst Spiers was the owner of the relevant equipment, its right as owner was defeated by the Bank’s registered interest. Any party parting with possession of its goods should consider whether the arrangement requires registration and take advice accordingly.