Learn how a plant hire company lost equipment when its customer went in to receivership. <read more>
Since this is not a reported court case, the name of the company has been changed
Our case studies are drawn from New Zealand where the Personal Property Securities Act or PPSA has been in force since 2002.
We follow a standard format:
- Portacom rented portable buildings to NDG Pine Ltd
- Title was never to pass to the customer – Portacom was to own the buildings at all times
- Portacom did not register its interest in the buildings on the Personal Property Securities Register (PPSR), since it felt its customer had no ownership rights in the buildings
- NDG Pine Ltd went in to receivership
- The receivers claimed that Portacom had no right to return of their buildings
- The receivers proposed to sell the buildings and account to their appointor – HSBC
- Portacom headed for court
Portacom lost! For the technically minded, the court held that the rental agreement created a security interest in the buildings, since it fell within the (NZ definition of a lease for more than 1 year). Since Portacom had not registered this interest on PPSR it had what is called an unperfected security interest in its buildings.
The HSBC debenture over all the assets and undertaking of NDG Pine Ltd attached to all assets – including the Portacom buildings. Since it had registered on PPSR, HSBC had what is called a "perfected security interest" in the buildings.
Under the rules of priority set down in PPSA – a perfected security interest outranks an unperfected security interest.
What may surprise you is that under PPSA the creditor with the highest priority can seize and sell the goods for their benefit – irrespective of who owns them.
HSBC got the money and Portacom faced a total loss.
The Portacom rental agreement came within the New Zealand definition of a "lease for more than 1 year" – which under PPSA creates a security interest irrespective of what the parties may agree.
Since Portacom had not registered its interest on PPSR – it lost out to a competing creditor which had.
How this applies in Australia
Under the Australian PPSA the equivalent term for "a lease of more than 1 year" is a "PPS Lease".
The outcome of the Portacom case would be very similar here. If your rental agreement falls within the definition of a PPS Lease – a security interest is created and the rules of priority apply.
The Australian legislation is in fact particularly harsh. Even if there is no competing creditor, Portacom would have lost its buildings on the insolvency of its customer. Under section 267 of PPSA, if the secured party (Portacom) has not registered on PPSR, its security interest will "vest in the grantor" (NDG Pine Ltd) on its insolvency. In other words – Portacom would lose its buildings anyway.
- If you rent, lease, or even loan out equipment – check to see whether your arrangements fall within the definition of a PPS lease.
- If there is any prospect that there is a PPS Lease – make sure that you register your customers on PPSR and attend to other compliance issues.
For more information on the steps you need to take to protect your equipment:
E-mail – enquiries @edxservices.com.au
Call – 03 9866 4559
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This document is intended to give a general indication of how PPSA may apply in Australia, drawing from New Zealand experience since 2002. It is not legal advice and the reader is not entitled to rely on it for an purpose. Neither EDX Australia Pty Ltd, its officers and employees accept any liability to any person, on any account whatsoever.