How to Win Back Lost Assets from a Position of Power

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How to Win Back Lost Assets from a Position of Power

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When a customer goes out of business before you’ve been paid, there’s one important way to protect yourself: the PPSR. This court case shows how registering your security interests on the PPSR will give you a seat at the negotiating table and a real chance to recover goods or money owed. 

Here we look at a legal case where the court was influenced by the Personal Property Securities Register <link to page 2.2 About PPS/PPSR explained> (PPSR) in deciding the fate of multi-million dollar medical equipment.

This case involved a dispute between the landlord of a special purpose medical centre, Cortez and its insolvent tenant. The tenant was the Cancer Care Institute of Australia (CCIA), although it had not signed a formal lease.

Cortez and the CCIA argued about whether medical equipment worth over $8 million had become a fixture. The medical supply company, Varian, had supplied and installed some linear accelerator equipment on terms that included a Retention of Title <link to page 4.3 Resources/Jargon Buster> (ROT) clause in its favour, granted by CCIA. Varian registered this Purchase Money Security Interest <link to page 4.3 Resources/Jargon Buster> (PMSI) on the PPSR.

If the equipment were found to be a fixture, it would fall outside the scope of the Personal Property Securities Act <link to page 2.2 About PPS/PPSA explained> (PPSA). The rights of the landowner and any mortgagees would then intervene, and Cortez would claim title over the equipment.

If the equipment was not found to be a fixture, it would be within the scope of the PPSA and the rights of the parties would be determined accordingly.

Unfortunately for Cortez, the court held that the medical equipment was not a fixture and that CCIA had title in the equipment.  

The Court’s reasoning

  • The court noted that one of the primary tests as to whether equipment had become a fixture was the ‘objective intent of the owner’ when it brought the equipment onto the property.
  • The court considered the fact that CCIA had granted a PMSI to the equipment supplier (Varian) was inconsistent with any intent for the equipment to become a landlord’s fixture.
  • The secondary test was the degree of difficulty required to move the equipment and any damage to the premises this would cause. The court accepted expert testimony from Varian that linear accelerators were routinely removed and/or replaced with no damage to premises.
  • Consequently, Cortez could not claim the linear accelerators as a landlord’s fixture.

What we can learn

Credit managers should take careful note that the court considered registration on the PPSR as objective evidence of the equipment owner’s intent when the equipment was brought on to the property – see court judgement, No.33.

Registration on the PPSR is not the only test of the owner’s intent, so it may not work in all circumstances. However, in this case we can see that to buy a seat at the negotiating table, you must register with the PPSR!

For a detailed explanation of what happened with the Cancer Care Institute of Australia case, read the full judgement here.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.