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Protect your assets against a liquidator

Personal Property Securities Law News | April 2014

A retention of title clause on a tax invoice may not be sufficient

Ensure your documentation under the Personal Property Securities Act [PPSA] is in order to protect your assets against a Liquidator. The Victorian Supreme Court recently held that a Retention of Title Clause on a Tax Invoice is sometimes not sufficient to protect a claim against a Liquidator.

In the case of Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2014] VSC 61,the Court examined a claim brought by a supplier of cleaning equipment named Central Cleaning Supplies. Central Cleaning Supplies sold equipment to Swan Cleaning on an ongoing basis before Swan went into liquidation in May 2013 when Elkerton and another liquidator were appointed to Swan. 

Central Cleaning Supplies had a general Credit Agreement which it had entered into with Swan in September 2009 before 30 January 2012. That credit agreement did not contain a Retention of Title clause.

Central Cleaning Supplies did, however insert a Retention of Title Clause on their Tax Invoices which they issued to Swan Cleaning before and after 30 January 2012 in respect of each order from Swan.

The Liquidator of Swan Cleaning asserted that Central Cleaning Supplies did not have the right to claim retention of title over cleaning equipment delivered to Swan Cleaning after 30 January 2012 on the basis that:

  1. The Credit Application was a general agreement entered into by Swan and Central before 30 January 2012 but this agreement did NOT contain a general security agreement [a Retention of Title Clause] which could have applied to all deliveries until the expiry of the Transitional Period [on 30 January 2014];
  2. In respect of deliveries of equipment made by Central to Swan after 30 January 2012, the Tax Invoices did contain the general security agreement in the Retention of Title Clauses on the Tax Invoices BUT
  3. These general security agreements had not been “perfected” by registration on the Personal Properties Securities Register [the PPSR] and therefore Central lost their entitlement make a claim in priority to the Liquidator.
  4. The Liquidator had a priority interest in the cleaning equipment because the Liquidator had the “possession”.

Central asserted that their interests in the cleaning equipment delivered after 30 January 2012 were protected under the “transitional” provisions in the PPSA. The Court held that in order to make this claim Central would have needed to register their interests on the PPSR, as there was no entitlement by Central to rely on the Credit Agreement as that Agreement did not contain any reference to a Retention of Title claim by Central and as such was not a general security agreement protected under the transition provisions.

The lesson for new players in this case, is to ensure that the documentation on which you rely to assert your claim to personal property is properly identified. Further, it is critical that any security agreement on which you have relied is also registered to “perfect” its purpose against others who may claim the same interest. The trick is to remember this is a “two-step” process involving a written security agreement and the registration on the PPSR.

Contact the lawyers at Forum Law to discuss this complex and relatively new area of law as we are at the forefront in the inner west in advising on the PPSA.

Forum Law is an active member of several reputable law and industry associations. We have recently obtained ISO9001 accreditation.