North Sydney Commercial Lawyers

Debt Recovery Lawyers for a Personal Property Securities DebtPrint This Post

Debt recovery can be difficult.  To recover a debt secured over personal property, you need to start with the end in mind. So our top way is:

 

1. Ensure the security transaction is managed by an expert.

The omission of little things can make a big difference, for example trying to enforce a security interest by the appointment of an administrator where the lawyer had forgotten to stamp the general security agreement,  as in the Photios case [2015] NSWSC 336. Although the case went on to determine that this could possibly be cured retroactively by the subsequent payment of duty, about $50,000 in legal fees were incurred in solving the problem.

 

We were pleased that the general security agreement (drafted by us) which became the subject of judicial scrutiny in another case – the Bluenergy  case [2015] NSWSC 977 –  passed muster.

 

2. Don’t hesitate, litigate!

The facts of the Bluenergy case are interesting. The secured creditor (SC) had a security interest in all present property and after acquired property of the company.

 

The company entered into a deed of company arrangement (DOCA) but the SC had not voted in favour of the relevant resolution and so it was not prevented from realising its security.

 

The SC delayed taking action but then realised that the effect of the DOCA  was to augment the assets of the company moving forward.

 

The Court held that the SC retained the benefit of the security, however  s 444D(2) of the Corporations Act operated such that the benefit only operated over the securitised assets which existed immediately before the DOCA cam into existence.

 

By the time the SC took action, almost all of the  present property  held by the company immediately  before  the DOCA was signed  had disappeared – it no longer existed.  As the security interest did not extend to property acquired after the DOCA was entered into, the secured creditor recovered very little. Not a happy ending.

 

3. Manage the Personal Property Securities Register (PPSR)

In Capital Finance [2015] NSWSC 1327,  Capital Finance Australia Limited financed the purchase of a motor vehicle and registered its security interest. On default, it  repossessed the vehicle but before the sale, a third party  claimed to have bought it and to have paid part of the purchase price. The third party registered a financing statement which blocked the sale by Capital Finance. Capital Finance used the administrative process in sections  179-181 to have the financing statement removed. This was then challenged by the third party. In the ensuing legal stoush, the Court said that the third party did not have a security interest but possibly had a purchaser’s lien, but that section 8(1)(c) of the Personal Property Securities Act 1999 (PPSA) excluded  it from the operation of the PPSA.

 

One  problem in arguing that a “purchaser’s lien” existed was that the third party did not actually have possession of the motor vehicle. Another problem for the third party was that they did not turn up at the hearing. This was probably because they knew their case was hopeless.

 

Capital  Finance succeeded in retaining their security interest and the right to sell the motor vehicle.  Compliance with the PPSR won the day.

 

4. Know how to use the Personal Property Securities Register

In January 2012, our client bought a luxury car at a substantial discount. It had been warranted as not being on the NSW Register of Encumbered Vehicles. It began to show mechanical problems. We undertook a PPSA search subsequently which showed that the car was indeed unencumbered but that previously it had been  written off in another State.

 

This information was successfully used in the subsequent litigation to recover damages for breach of contract which arose from  the mechanical problems.

 

5. Make sure your employees are authorised

In Gelpack Enterprises [2015] NSWSC 1558 (Gelpack), Primaplas supplied resin to Gelpack under Retention Of Title terms prior to 2012 (when the Personal Property Securities Act (PPSA) commenced).

 

Primaplas sent through new terms and conditions (Ts and Cs) complying with the PPSA in early 2012, correctly claiming a purchase money security interest in goods supplied and also in all present and after acquired property (allpap). The security interest was perfected by registration.

 

The operations manager of Gelpack signed the new terms and conditions and returned them but an argument arose as to whether he had the authority to do so. He was not a director. He was not explicitly authorised by any director or the board of directors to sign the new terms. He had no written authority from his superior to execute the new terms and conditions.

 

In the event, the Court held that Gelpack was bound by the 2012 terms because even if the operations manager didn’t have authority: Primaplas had rights under the earlier 2007 terms to change them unilaterally and also Gelpack had accepted the new terms by placing new orders after it had received them.

 

If the operations manager had a written employment agreement setting out his duties and authority in detail, the stress and cost of the litigation could have been avoided.

 

Our written employment agreements provide plenty of space for the parties to set out the employee’s job description. Good communication means happy staff, a profitable business and less litigation.

 

6. Handle those security interests over trust assets with care

For several years we have strongly held to the view that a security interest over a trust must be registered by way of providing the ABN of the trust when registering the security interest on the Personal Property Securities Register. Persons opposed to this view have included those who argue that it can be perfected by way of registering the security interest against the ACN of the trustee company and then relying on the general law which provides that the trustee has a right of reimbursement of claims against it out of the trust assets.

 

We have long thought this argument to be full of holes:

(a) what if the trust deed limits the amount of debt that can be reimbursed?

(b) what if the trust deed puts limits on the type of debt or claim in respect to which reimbursement can be claimed?

(c) how is  the validity of such a registration (against the trustee’s A C N)  impacted by sections  164 and s 165 of the Personal Property Securities Act? Our bet is that Section 165(b) will render the registration completely ineffective.

(d)       registrations against the trustee’s name (where possible in conjunction with the ACN)  ought to be avoided because changing the trust’s name down the track is a good way to cause additional confusion if that is what the trustee (as creditor) wants to do.

 

7. Start your debt recovery in the right Court!

In the Interleasing (Australia) Limited Case [2015] FCA 1120,  the security agreement was governed by Victorian law. But Interlink had good commercial reasons to litigate in NSW:  NSW was its primary place of business and some (but not all) of the  witnesses were in NSW. In addition, its lawyers were in NSW and most of the personal property (68 motor vehicles) were understood to be in NSW.

The Court noted that NSW was not chosen capriciously: Interlink had commenced the case in the Federal Court located in NSW and despite challenge to transfer the proceedings to the Federal Court sitting in Victoria, Interlink was able to keep the proceedings in NSW.

 

Getting the Court location right can save thousands of dollars in legal fees, as well as travel costs and accommodation costs too.

 

If you have an action or claim that you want to discuss, call Leigh Adams Commercial Lawyers. Leigh is an expert Debt Recovery Lawyer and specialises in Personal Property Securities , call on 99640022 and ask for Leigh.