1. What is the PPSA?
The Personal Property Securities Act 2009 (Cth) (PPSA), commenced on 30 January 2012. The PPSA establishes a new regime for the creation, priority and enforcement of security interests in personal property.
Personal property is broadly defined as any form of property capable of being owned other than land, fixtures and certain statutory interests (e.g. mining tenements). This definition includes a wide variety of property that is frequently hired or leased including motor vehicles, aircraft, watercraft, mining equipment, farming equipment, construction equipment and portable buildings. The centrepiece of the PPSA is the Personal Property Securities Register (PPSR) on which security interests in personal property are to be registered.
2. Will the PPSA impact on my hire or rental business?
The PPSA extends the traditional notion of what constitutes a security interest. In addition to covering well known security interests such as mortgages, charges and pledges a security interest now, amongst other things, includes long-term leases of personal property, defined in the PPSA as a “PPS lease”.
A PPS lease is any lease for an indefinite period or for more than one year, or 90 days for serial numbered goods (for example, motor vehicles and boats), where the lessor is regularly engaged in the business of leasing goods. A PPS lease excludes a lease by a lessor who is not regularly engaged in the business of leasing goods and a lease of consumer property as part of a lease of land where the use of the goods is incidental to the use and enjoyment of the land.
PPS leases will also be Purchase Money Security Interests (PMSI). A PMSI is a special type of security interest which, if properly registered, has “super priority” over other security interests.
3. Why register on the PPSR?
Prior to the commencement of the PPSA, property owners who leased equipment to customers were protected in the event of a priority dispute, or insolvency of those customers, by virtue of the fact that they owned the equipment. If, for example, a customer experienced financial hardship, such that a receiver/administrator was appointed, the owner of the equipment had a prima facie right to retake possession of that property.
The PPSA has fundamentally changed this position such that title in, and ownership of, property is no longer sufficient to preserve an owner’s interest – what matters is the PPSA priority rules. Although registration is not compulsory, the PPSA requires registration in order to maximise priority. The general rule is that an unregistered lease interest will be subordinate to a registered security interest. This means that if another person or entity claims a security interest in leased property and has registered that interest on the PPSR (for example, a financier with a security interest in all present and after acquired property of the lessee) will have priority over a lessor’s unregistered lease interest.
If a lessor fails to register their security interest, and a customer/lessee in possession of property goes into administration or liquidation, the owner’s title in the equipment will, in all likelihood, pass to the lessee and that equipment will be available to satisfy the claims of other creditors. An owner could also lose their interest in the property if the security interest is unregistered and the property is subsequently sold or leased.
4. How have the Courts interpreted the PPSA?
Maiden Civil (P&E) Pty Ltd v Queensland Excavation Services Pty Ltd & Ors  NSWSC 852 (the Maiden Civil Case), is the first major decision to consider the PPSA and, in particular, the provisions dealing with competing security interests. This decision confirms that lessors of equipment are, notwithstanding legal title, at risk of losing their property to third parties unless they have perfected their security interest by registration under the PPSA.
In March 2010, Queensland Excavation Services Pty Ltd (QES) acquired three Caterpillar construction vehicles (Caterpillars) which it subsequently leased toMaiden Civil (P&E) Pty Ltd (Maiden). To finance the lease, Maiden obtained finance from Fast Financial Solutions Pty Ltd (Fast). Fast required, and Maiden granted, a security interest over all of Maiden’s present and after-acquired property (expressly including Maiden’s interest as lessee in the Caterpillars). Fast successfully perfected its interest by registration on the PPSR. Critically, QES’s interest, as owner or lessor of the equipment, was not perfected by registration on the PPSR or by any other means.
Maiden defaulted under its loan arrangement with Fast and, as a result, Fast appointed receivers (Receivers). At about the same time, Maiden defaulted under the terms of its lease arrangement with QES and QES repossessed the Caterpillars. What followed was a dispute between the Receivers, asserting priority rights to the equipment by virtue of its perfected security interest and QES asserting priority rights to the equipment as the owner/lessor.
The Court decided in favour of the Receivers for the following reasons:
- QES held legal title to the Caterpillars. However, the dispute was one of priority between competing security interests under the PPSA, not of ownership;
- QES being the owners of the Caterpillars and lessors of a PPSA lease under section 13 of the PPSA, had a security interest. QES failed to register this security interest;
- Maiden, as a PPSA lessee in possession of the Caterpillars, had possessory and proprietary rights. Maiden could therefore grant rights in the equipment, such as a security interest, to any other person. Maiden did grant a security interest to Fast pursuant to the loan agreement. Fast perfected this security interest by registration on the PPSR;
- Under the PPSA, the default position is that a perfected security interest in collateral has priority over an unperfected security interest (section 55(3) of the PPSA). Accordingly, Fast’s perfected security interest took priority over QES’ unperfected security interest and the Court ordered that the Caterpillars were to be delivered to the Receivers;
- QES’s argument, that the general priority rules did not apply because its security interest was transitional, was unsuccessful. Transitional security interests are temporarily perfected for a period of two years from the commencement of the PPSA (i.e. until 31 January 2014). However, they only benefit from this protection if they have met the requirements that were in place prior to the commencement of the PPSA. In this case, QES could have registered its interest under the lease on the ‘Northern Territory Register of Interests in Motor Vehicles and Other Goods’ but did not do so. Accordingly, QES did not receive the benefit of the transitional provisions and their interest remained unperfected.
The Maiden Civil case highlights the importance of knowing and understanding the PPSA regime and vividly illustrates the dangers, particularly for owners or lessor’s of property, of failing to properly register a security interest in property on the PPSR.
5. How do I protect my interest under the PPSA?
Owners and lessors of property or equipment should:
- identify transactions that create security interests (including PPS Leases) requiring registration on the PPSR;
- review their hire agreements to ensure that they give due consideration to the PPSA; Hire agreements must (amongst other things):
a) be in writing;
b) grant the lessor a express right to register its security interest on the PPSR;
c) contain a detailed description of the property leased or hired; and
d) be executed by the lessee;
- perfect their security interests by completing and lodging a properly completed financing statement on the PPSR, within the required timeframes (a defect in the financing statement may render the registration ineffective).
Please contact our Ben McPherson if you have any questions regarding the issues covered in this article. This article is for general guidance only and should not be regarded as legal advice. Legal advice should be obtained before taking any action on any issue covered in this article.