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Security Interests Story

While it might be reasonable to think that holding title to personal property is enough to maintain your interest and control over that property, under the Personal Property Securities Act, this is simply not the case. In the first important decision on the operation of the PPSA, the Supreme Court of NSW has made it very clear that a perfected security interest will trump a title to leased personal property.

If you have an interest, it must be perfected by registration on the Personal Properties Security Register to enable you to compete with any subsequent registered interests. This decision is especially important for clients who finance or hire personal property.

While it is always advisable for anyone providing financing to a purchaser or hiring personal property to obtain and register a PPSA security interest, this recent decision highlights how critical it can be to securing your rights.

Cleary Hoare can assist clients in documenting and perfecting security interests on the PPSR in a manner that secures their interests not only with the transaction party but also with the world at large. We can also assist clients in recognising where deemed security interests arise and where appropriate documents ought to be entered into.

Details of the Case

The New South Wales Supreme Court has recently delivered its decision in Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors [2013] NSWSC 852 which is the first major Australian decision on PPSA security interests.

The decision is especially important for clients who finance or hire personal property.

The Importance of the Decision

Generally the decision highlights three key areas of importance and concern:

  • Why it is critical to obtain perfection of security interests within the PPS regime
  • What can go wrong if a transitional security is not perfected
  • Implications of registered interests competing with title to the property

Some Basic Facts

Queensland Excavation Services (“QES”) purchased three Caterpillar excavators and hired them out to Maiden Civil under an oral lease arrangement.

Despite the PPSA creating a deemed security interest in respect of the hiring arrangement, QES did not register a security interest against Maiden Civil in respect of the equipment.

Maiden Civil received finance from Fast Financial Solutions (“Fast”) to pay QES.

Fast took and registered an all assets/property security interest on the PPSR in accordance with a General Security Agreement it entered into with Maiden Civil.

Maiden defaulted in its payments to Fast.

Fast appointed a receiver under the provisions of the General Security and the receiver took control of the equipment in accordance with the security interest.

The Decision

QES disputed that Fast could take control under receivership as QES still held the legal title to the excavators.

However, the Court did not agree with QES and instead determined that:

  • QES as lessor had a deemed security under Section 13 of the PPSA which would allow it to register a security interest in the PPSR.
  • Maiden Civil had rights under the lease arrangements and that gave Maiden the right to grant further security interests to Fast in respect of the excavators.
  • Fast had a perfected security interest – ie its security interest was documented and registered on the PPSR.
  • The priority regime in the PPSA provides that the perfected registered security interest of Fast took priority over QES even though QES held the legal title to the excavators.

QES in an attempt to bypass those priority rulings, argued that because it had a transitional security (ie a security interest prior to the PPSA regime) it was not subject to the priority rules. Its argument was not accepted as the prior security interest was not registered on an appropriate register prior to commencement of the PPSA.

Because Fast had a perfected security interest, it took priority to QES’s legal title and was therefore entitled to possession of the excavators.

What to Take From the Decision?

It is absolutely critical that when taking any security interest, that it be perfected as soon as practicable after the security interest arises.

While this may be simple in the case where a documented Security Agreement is entered into between the relevant parties, it is not as apparent when deemed interests arise.

How Can we Help?

We can assist clients in documenting and perfecting security interests on the PPSR in a manner that secures their interests not only with the transaction party but also with the world at large. We can also assist clients in recognising where deemed security interests arise and where appropriate documents ought to be entered into.

While the PPS regime helps protect parties in commerce, sometimes it is also important to ensure that further rights are extended to the secured party through appropriate guarantees and indemnities.

We suggest a combination of arrangements should be used when a transaction requires that one party requires security for its obligations to another and that is always best worked out on a case by case basis to ensure the security fits the parties and the transaction.

For more information on this case, please contact Nick Eckers.

 

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