Prior to the implementation of the Personal Property Securities Act (PPSA), having legal title to goods was generally enough to protect your interest in those goods.
However, under the PPSA entitlement to goods is not determined by legal ownership but by the priority of security interests registered on the Personal Property Securities Register (PPSR).
This has been a significant change to Australian commercial law and is one that many businesses have still not adequately dealt with. For example, if your business owns equipment or other goods which are kept on someone else’s premises, even temporarily, and you do not register a security interest on the PPSR in connection with these goods, you could lose ownership of those goods, if the occupier of the premises on which your goods are stored becomes insolvent or has an administrator appointed.
In the case of Maiden Civil (P&E) Pty Ltd v Queensland Excavation Services Pty Ltd, the owner of two Caterpillar excavators ‘lost’ their ownership of the excavators as a result of not registering a security interest in them. Queensland Excavation Services Pty Ltd (QES) had leased the Caterpillars to Maiden Civil (P&E) Pty Ltd (Maiden) without any formal agreement in place. More significantly, QES did not register a security interest on the PPSR in connection with the excavators, despite the excavators being in the ‘possession’ of another party. Maiden later obtained finance from Fast Financial Solutions Pty Ltd (Fast). Fast and Maiden entered into a written security agreement under which all of Maiden’s assets were provided as security for the finance. Fast then registered a security interest over all of Maiden’s assets, which included the 2 Caterpillar excavators. When Maiden defaulted on the loan, Fast appointed receivers who claimed the right to sell the Caterpillars.
The Court found that, although QES was the legal owner of the Caterpillars, its interest was ‘trumped’ by Fast’s registered security interest and therefore the receivers were entitled to sell the Caterpillars on behalf of Fast.
Particularly for small businesses, failing to register security interests can have a significant detrimental effect. In order to ensure you are adequately protected, you should:
- enter into a written agreement which details the property that you have stored elsewhere and which contains an obligation for the other party to allow you to retrieve your property at any time;
- enter into a written security agreement which secures the other party’s performance of that obligation; and
- register your security interest on the PPSR.
Although there are costs associated with the preparation of these documents, you need to weigh up these costs against the risk that you could lose ownership of your goods.
More information
If you need any help to make sure your property interests are protected, or assistance in preparing the required agreements and registering security interests on the PPSR, please contact Jeremy Goldman, Principal Lawyer, on (03) 8600 8886 or jgoldman@kcllaw.com.au.
Note: This update is a guide only and is not intended to constitute legal advice.