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The Personal Property Securities Act 2009 – An UpdatePrint This Post

The Personal Property Securities Act 2009 – An Update

Presented in Parramatta on 26 February 2015 by Leigh Adams of Leigh Adams Lawyers, North Sydney.

Case Law Generally

The Personal Property Securities Act 2009 (Cth) (the ‘PPSA’) began operation on 30 January 2012. It totally changed the law in Australia in relation to taking security over goods and almost everything else other than land. In addition, it established a new registration system for security transactions.

There are over 40 reported cases where the Courts have made some kind of comment on the PPSA, though frequently these comments are brief. The most common circumstances has been plaintiffs seeking an extension of time to make registrations where the 20 day time limit has been missed, exposing the secured party to the risk of having their security interest vest in the grantor if the company goes under external control within the next six months.

A unique result was found in SFS Project Australia Pty Ltd v Registrar of Personal Property Securities, where a company mistakenly removed a registration and then wanted the Registrar to reinstate it with its original priority time, as if never removed. The Court found that s 186 of the PPSA allowed the Registrar to do this and ordered it to be done.

A clearly anticipated result was Pozzebon v Australian Gaming and Entertainment Ltd, where the plaintiff argued that a security interest had not been ‘perfected by registration, and by no other means’ as required by s 588FL of the Corporations Act. The plaintiff’s argument was that its security interest had been perfected by a combination of attachment, enforceability and effective registration. The court said the argument was ‘obviously misconceived’.

Nevertheless, the outcomes generally reflect how lawyers have expected the PPSA to operate. Examples include the fact that lessors who don’t register their security interests over equipment they own will lose their security interest to others who do register: Re Maiden Civil . In addition, suppliers who sell on retention of title terms without a registration being made, willlose their security interest if the customer goes into liquidation: Central Cleaning Supplies. Moreover, registrations against company grantors must be made within the 20 day time limit stipulated by s 588FL of the Corporations Act, or the security interest will vest in the grantor if the company goes into liquidation within 6 months: Pozzebon case.

Recent Case Law

In THC Holdings Pty Ltd v CMA Recycling Pty Ltd [2014] NSWSC 1136, THC purchased scrap metal from CMA. Payment had been made and title had passed.

But the scrap metal remained on the property of CMA. This scrap was accumulated in one pile at the CMA site, separate from other scrap. Before the scrap was sent to THC, administrators were appointed to CMA. CMA explained the situation to the administrators, and claimed the scrap from the administrators, but to no avail. The administrators without providing notice to CMA, sold all of CMA’s plant equipment and stock including the scrap in question.

THC applied to the court for orders that the administrator had breached s 442C of the Corporations Act when they sold the scrap. The court made the orders sought and awarded THC damages under s 1324(10) of the Corporations Act.

The court said: “While CMA retained possession of the scrap metal, it cannot be said that THC’s interest in the scrap as owner, ‘in substance’ secured payment or performance of any obligation of CMA. The only ‘obligation’ that CMA had, was that of a bailee to deliver the goods to THC, or at its direction. I accept THC’s submission that it cannot be said that the interest of an owner/bailor in the owner’s bailed goods is an interest that ‘in substance’ secures the bailee’s obligation to deliver the goods to the owner or make them available for collection”.

There were some interesting observations in Re Arcabi Pty Ltd; ex parte Theobald [2014] WASC 310. The business of Arcabi included the storage and sale of rare coins and bank notes (Goods) owned by third parties (Investors). Arcabi defaulted on its loan from Wespac (the Bank) which had a perfected general security interest over all Arcabi’s present and after acquired property. Could the Bank’s receiver take the Investor’s Goods and sell them and apply the proceeds to reduce the indebtedness of Arcabi to the Bank?

The Goods were broadly of two types. As to the first type, “Mixed Storage Goods”, the arrangement for these was that these Goods were stored only, and the Investors were charged a storage fee and issued with an invoice. The second type was “Consignment only Goods”. I will talk about the Consignment Only Goods in a minute.

The Court accepted that the arrangement in relation to the Mixed Storage Goods was a bailment. However, the bailment did not secure payment or performance of an obligation, and so it did not give rise to a security interest. But: was the bailment a PPS lease under s 13?

One of the requirements for a bailment to be a deemed PPS lease is that the bailor must be regularly engaged in the business of bailing goods. However, the Investors were not regularly engaged in the business of bailing goods. They were in the business of profiting from the exchange of rare coins and bank notes. The issue of the bailment was merely incidental to this main purpose.

What about the Consignment Only Goods? If the consignment in substance secured payment or performance of an obligation, then s 12(2)(h) of the PPSA provides that the operation of the priority provisions of the PPSA would be enlivened. However, the Goods were not held as security for a debt because (typically for many consignments) title passed to the third party purchaser before moneys were payable.

In White v Spiers Earthworks Pty Limited [2014] WASC 139, Spiers agreed to sell a business and equipment to BEM Equipment Pty Limited and as part of the deal, entered into a hire agreement with BEM in relation to certain vehicles and trailers.

BEM had given a charge over all its assets to NAB in February 2011. BEM became insolvent and appointment administrators in 2013. Shortly after that, NAB appointed receivers. Spiers had not registered its interest under the predecessor to the PPSA in Australia, (in this case the applicable legislation was the Chattel Securities Act 1987) and therefore no transitional protection was available.

Spiers attempted to invoke s.51(xxxi) of the Constitution and argued that the vesting was not on ‘just terms’ because Spiers would receive nothing in return. The Court said that the applicable PPSA statutory provisions are not one for the ‘acquisition of property’ within s.51(xxxi) of the Constitution, but rather they are part of a general regulatory scheme aimed at the ‘adjustment of competing rights and liabilities’. Spiers failed.

The recent decision of Sandhurst Gold Estates Pty Ltd & Ors v Coppersmith Pty Ltd & Ors [2014] VCS 217 was one where the Supreme Court of Victoria was required to consider circumstances where the defendant was asserting a security interest in property, but in reality, the defendant was simply claiming ownership of part of the asset.

The Court found that the asserted equitable interest in property was not a security interest, and granted an order restraining future registrations. The Court said the PPSA only applies to consensual transactions, not asserted equitable interests in property. In addition, the Court said that consensual transaction must secure a payment or performance of an obligation, unless the security interest falls within one of the categories of ‘deemed’ security interests set out in section 12(3) of the PPSA.

In Sandhurst the defendants refused to provide an unconditional undertaking not to register any further financing statements if the existing registrations were removed, and implied that they would continue to lodge financing statements until they obtained certain documents from the plaintiffs, relevant to proving the defendants’ alleged equitable claim in respect of the plaintiff’s property. Were the ‘strategic’ registrations a breach of section 151 of the PPSA?

Section 151 provides that:

‘a person must not apply to register a financing statement…that describes collateral, unless the person believes on reasonable grounds that the person described in the statement as the secured party is, or will become, a secured party in relation to the collateral..’

The Court refused to properly consider s 151 by concluding that regardless of whether the defendants were or were not in breach of section 151, the Court had inherent jurisdiction to restrain them from conduct (i.e. registering any further financing statements) which was prima facie lawful. The Court concluded that it was appropriate to grant an injunction to protect the plaintiffs’ rights by using the analogy with cases regarding the removal of caveats.

In SES Projects Australia Pty Ltd v Registrar of Personal Property Securities as I mentioned before, the Court held that the Registrar has the power to restore data to the Register where data was incorrectly removed because an application to remove it was submitted in error or contained a mistake. The power to restore data is not confined to circumstances where the error was caused by the Registrar.

So, the Registrar has the power to amend the Register to correct your error if you discover an error in an application to register a financing change statement after it has been lodged.

The decision of Macquarie Leasing Pty Ltd v DEQMO Pty Ltd [2014] NSWSC 1466 confirms that ownership interests are not registrable on the PPSR.

Macquarie entered into a chattel mortgage agreement with Elite for the purchase of a truck. Elite defaulted, Macquariedemanded return of the truck, Elite refused, so Macquarie commenced and was successful in proceedings against Elite and Rodney Culleton, the sole shareholder and director of Elite. The truck was sold at public auction and simultaneously Deqmo Pty Limited, of whom Culleton was the sole director and shareholder, registered a security interest in the truck on the PPSR, with the effect that Macquarie could not pass clear title to the purchaser. Macquarie then served an amendment demand on Deqmo. No response was received. Macquarie then initiated proceedings.

The evidence put forward by Deqmo failed to establish the basis of the security interest. The Court concluded that Culleton was more concerned with the manner in which the truck was repossessed, and the conduct of its sale, that he was concerned about the legal status of the purported security interest. The claimed interest was one given by Deqmo to Deqmo and a person or company cannot give a security interest to itself, as per section 12 of the PPSA.

The case of Carrafa, Goutzos and Lofthouse[2014] VSC 570, highlights that timing is everything with the PPSA and ownership means nothing. As a result of the decision, Doka lost over $1m of formwork equipment. Everyone agreed that Doka owned the equipment. Everyone agreed that it had registered its security interest on the PPSR. So what went wrong?

From March 2013, Doka had leased formwork equipment to Relux for “indefinite periods”. However, Doka only registered its security interest on 20 February 2014.

Leases for indefinite periods are “PPS leases” and therefore they are deemed security interests under s 12. Section 588FL of the Corporations Act provides that a security interest granted by a company will vest in the grantor if it is perfected by registration and the security registration time is after the latest of six months before the “critical time” or 20 business days after the security interest was created.

Six months before the critical time was 7 October 2013. Twenty business days after the security interest was created was 19 February 2014. Doka had registered its security interest on the PPSR on 20 February 2014, so all equipment supplied under the lease vested in Reflux.

Unresolved Practical Issues

Registration Requirements

Section 62 of the PPSA and s 588FL of the Corporations Act. The terminology in each is different.

In addition, s 62 applies where there is a “purchase money security interest granted by the grantor”. Section 62 gives PMSIs priority over General Security Arrangements (‘alpaps’ for example) if the collateral is inventory being goods, and the security interest is registered by the time delivery: but what if delivery takes 22 days and you register on the 21st day but you are now within the 6 months rule of s588FL?

Sales and lease-backs

Is the sale fully paid for? Who registers first? Are there subrogation or subordination rights? You need to reflect such matters in the security documents.


The Act only applies to bailments where the bailee provides value: s 13 (3). But the bailee always provides value! In Arcabi, the ‘note and coin’ case I mentioned, the bailee (Arcabi) did not provide value in the sense of paying the investors to hold their notes and coins. The investors paid. So bus depots, storage businesses, warehouses and the like will be exempt from the Act because the bailor is providing value, not the bailee. However, the case was not decided on this point, it was decided on the basis that the bailor was not in the business of bailing goods, but selling coins and notes.

Lease for an indefinite term

Are they a good idea? For example, where there’s a lease for 60 days and then the lessee says “I need another 7 days” and the lessor says “Don’t worry – have it as long as you like” and lessee says “ok”. Inadvertently, the parties fall into the PPSA regime.

In Cancer Care Institute of Australia Pty Limited [2013] NSWSC 37, the defendants owned a medical centre. The plaintiff leased part of the medical centre although there was no written lease agreement. The plaintiff lessee bought two linear accelerators for about $9m from Varian. The linear accelerators were used in the treatment of cancer patients. Varian held a PMSI in the linear accelerators and this was registered on the PPSR. The linear accelerators were installed on steel base frames which were grouted into the floor.

The plaintiff lessee breached the Varian lease agreement. But the defendant real estate lessor claimed that the linear accelerators were a fixture in the premises so that title passed to the lessor and was subject to mortgages over the premises.

The PPSA does not apply to fixtures. It defines fixtures as anything “affixed” to land. The common law definition of course is dependent on intent. Black J, held that linear accelerators had not become fixtures. How could that be? They were affixed to the land. He said that the fact that the linear accelerators were purchased on credit on terms that Varian (the lessor) would retain a PMSI in them, tended against an objective intention that they would become part of the premises.

So he uses the common law definition and not the PPSA definition to come to no doubt a just result.

The PPSA Review – likely outcome?

Recommendations have been made in Consultation Paper 4 about the PPS Register and I comment on some of those here.

‘Inventory’, ‘control, and ‘subordinate’

Item 8 of the table in section 153 (1) of the PPSA requires that a registration must include any details specified by the Regulations.

These details include ‘whether or not the collateral may include inventory’. When you think about it, this is really relevant only to the question of whether the collateral may be a ‘circulating asset’, which relates back to priorities because employee entitlements rank ahead of security interest in circulating assets.

This question of relative priority becomes relevant at the time of insolvency and can be dealt with by an insolvency practitioner by reference to materials extrinsic to the register. Accordingly, I agree with the proposal in Consultation Paper 4 to remove the requirement for a secured party to indicate if collateral is inventory. I also agree for the same reasons, that there should be no need to indicate whether or not a secured party has control of collateral that would otherwise be a circulating asset.

Changes to collateral classes

Consistent with the conclusions in the consultation paper, I support the continuing use of collateral classes. I also support the idea that there should be a new collateral class entitled ‘all present and after acquired property relating to’ . For example, you could recite in the collateral description box in the financing statement: all present and after acquired property relating to [a particular business] or [a particular location].

An example of how this could become useful is where one company owns several businesses and the whole alpap security interest must be discharged to sell just one business. This occurred to a client of mine who had just been divorced and his ex-wife had to be fully paid out from the proceeds of the sale of the first two business sales, meaning he had to get expensive bridging finance to continue trading.

Collateral descriptions

Where a party inserts a collateral description in the free text field, the effect is to reduce the range of assets caught by the registration.

Practical difficulties that can arise when trying to accurately describe collateral in a 500 character field. Moreover, the collateral can change from time to time in certain commercial situations, and so I agree that it should continue to not be compulsory to include details of collateral in the free text field.


Currently, it is necessary to stipulate if a security interest is a purchase money security interest (PMSI).

If it is a PMSI, and s 62(1) of the PPSA has been complied with, then the PMSI will have priority over other security interests that would otherwise affect the same collateral.

New Zealand does not require that a PMSI interest be specified in a financing statement. Probably because it serves no useful purpose. It complicates the registration task, including by requiring 2 registrations (one PMSI, one non-PMSI) where there might be some doubt about whether the security really does amount to a PMSI .

There is no need to make reference to the PMSI status in the financing statement. Making such a reference notifies a prior registered holder of a security interest of course but any PMSI causes the estate of the grantor to be increased by the value of the collateral supplied or funded by the new secured party, and so it does not affect the prior registered holder in any event.

Questions of priority can be left for determination at the time of insolvency or enforcement.

Body corporate grantors

The suggestion in proposed recommendation 4.21 of Consultation Paper 4 is that where a body corporate would presently default to a description by its name “as provided for in its constitution or equivalent document”, there should be an opportunity to use any identifying number under the law under which it is incorporated. That sounds like a good idea.

Of course, the register functions only in the English language, and does not accept foreign characters or even foreign versions of English letters (such as vowels with accents).

Consultation Paper 4 proposes that the regulations be amended to provide, where a grantor’s or secured party’s name or other identification details would need to be entered on the register in letters that are not accepted by the Register, that the registrant be able instead to use any reasonable transliteration of that name, or other identifying details for the purposes of the registration.

I think that’s a good idea. For example, a secured party could be asked to indicate (by ticking a box) that a name is a transliteration or approximation of a name that is not expressed in the English alphabet.

Grounds for lodging a financing statement

Proposed recommendation 4.38 suggests that s 151 (1) be amended to provide that a person may register a financing statement if the person believes on reasonably grounds that the person described in the statement as the secured party is or may be, or may become, a secured party in relation to the collateral. Currently, the bolded wording above reads will become.

This overcomes the risk of a civil penalty where there is some uncertainty about whether there will in fact be a security interest.

Amendment demands

Under proposed recommendation 4.42, it is proposed that s 178 (1) be altered to allow an amendment demand to be made by the grantor.

My initial (and current) reaction to this was that we will have every grantor in town tinkering with the Register.

But what if a secured party has registered in the wrong collateral class? The remedy for the grantor should be to require registration in the correct collateral class (and, if relevant, with a collateral description). But to effect this you still don’t need to give the grantor powers of amendment. The grantor can approach the Registrar under s 186. Or the grantor can issue an amendment demand under s 178. So I don’t agree with this proposal.

The end

26 February 2015

Leigh Adams Lawyers