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Don't let your leased property be "gazumped" by a liquidator or administrator

Personal Property Securities Law News | February 2015

The Personal Property Security Act [the PPSA] was introduced on 29 January 2012 and its application and interpretation are slowly being developed in a trickle of Court decisions since that time.

Liquidators often seek to determine their interests in property left in their possession upon being appointed, notwithstanding that the property may belong to a third party.

This recent case of Carrafa, Gountzos & Lofthouse (as liquidators of Relux Commercial Pty Ltd (in liq)) & Anor v Doka Formwork Pty Ltd [2014] VSC 570 (14 November 2014) provides some insight into the consequences of bad timing of the registration of security interests on the Personal Property Securities Register under the PPSA.

In this case Relux leased formwork equipment from Doka Formwork for Relux's construction business. Doka issued their terms and conditions for the lease of the equipment on delivery of equipment to Relux and these terms comprised the "Security Interest Agreement". There were a number of deliveries of equipment before 20 January 2014, and then a delivery on 26 February 2014, and another in late March 2014.

Doka registered their security interest in the equipment on 20 February 2014. Relux appointed Administrators on 7 April 2014 (the "critical date"), and then appointed a liquidator on 16 May 2014.

The liquidators applied to the Court for a decision on whether they had "superior" rights to the equipment over Doka Formwork.

The Court ruled that the leases of the equipment were "PPS Leases" under sections 12 and 13 of the PPSA. This is to be distinguished from transfers of personal property under a sale agreement.

The Court then considered the timing of the Registration of the security interests by Doka on the PPSR. Section 588FL(1)(a) of the Corporations Act provides that a security interest is created where:

  • The security interest is registered on the PPSR and (as applicable to this case)
  • The registration occurred before the later of the following dates:
    • 6 months before the appointment of the Administrator (the critical date) which in this case would have been 7 October 2013; or
    • within 20 business days of the Security Agreement (giving rise to the registration on the PPSR) (in this case the rent agreement) was in force. In this case this is the later date.

On this basis the Court found that the security interests for equipment registered on the PPSR by Doka which was delivered before 20 January 2014 (being 20 business days before the registration on the PPSR) were the property of Relux's liquidator. The logic here is that those Lease Agreements were not registered within the 20 business days of the PPSR registration. The approximate value of this equipment was about $1,000,000.

The security interests for property delivered after 20 January 2014 (in the deliveries of 26 February and late March) were the property of Doka, as these interests had been registered on the PPSR on 20 February 2014 being within 20 business days of their respective Security Agreements (the terms and conditions).

The rules for registration of a sale of personal property on the PPSR can differ to the PPS Lease situation. This will apply to what was previously referred to as a Retention of Title sale. In these cases the PPSR registration of the security interest applying to property which is classified as "Inventory" must occur before actual delivery of the said Inventory.

We can advise you on the preparation of Security Agreements and the registration of security interests on the PPSR. It is important to ensure that the 2-step process occurs and that the registration occurs within the time frames required, to avoid being "gazumped" by a liquidator or other external administrator. We can also assist with any other concerns in relation to your business.

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