On 30 January 2012, the Personal Property Securities Register (“PPSR”) came into effect under the Personal Property Securities Act 2009 (Cth) (“PPSA”). The introduction of this national register merged the various Commonwealth, state and territory laws and registers into one national system for personal property securities. Security interests in personal property are able to be registered and searched on the PPSR. Security interests may be registered over all forms of personal property. Examples of personal property that able to be registered on the register include motor vehicles, boats and art, but exclude real property such as land.
The case of Maiden Civil (P&E) Pty Ltd v Queensland Excavation Services Pty Ltd  NSWSC 852 (“Maiden Civil”), was the first major case to be decided after the commencement of the PPSR. This case reinforces the importance of registering security interests on the PPSR and the costly consequences that failing to register may have. In this case, Queensland Excavation Services Pty Ltd (“QES”) had an oral agreement to lease three Caterpillar machines to Maiden Civil (P&E) Pty Ltd (“Maiden”). QES did not register its security interest in the property. After taking possession of the machinery, Maiden entered into a security agreement with one of its creditors, Fast Finance. The security granted for the loan was over the whole of the company’s assets; this included the Caterpillar machinery. Fast Finance registered the security on the PPSR.
When Maiden went into liquidation, Fast Finance sought to take possession of the security assets, including the Caterpillar machinery. The Court held that although the lease was entirely oral, it still gave rise to a PPS Lease whereby a security interest existed and could have been registered. Ultimately, it was irrelevant that QES had legal ownership over the property and instead the entitlement and control over the property was determined by the priorities of the security interests. Pursuant to the rules of priority under the PPSA, the perfected security interest held by Fast Finance prevailed over QES’s unperfected security interest. As a result, Fast Finance was able to take possession of the machinery to satisfy Maiden’s outstanding debts.
Although the lease had commenced prior to the introduction of the PPSR, if QES had registered their interest on the then current register, the registration would have still applied under the PPSA on the new register. QES would subsequently have been classed as a secured party with a perfected security interest and have the right to take back possession of the machinery on lease. Unfortunately, this was not the case and QES had failed to register their security interest, losing the right to have control over the machinery.
It is evident from the outcome in Maiden Civil the importance of registering security interests on the PPSR to prevent situations where perfected security interests overcome legal ownership. In order to be protected in situations whereby a security interest over personal property exists, it is imperative that all security interests are registered on the PPSR and are enforceable. To be considered an enforceable right, the security interest must have attached to the collateral. Attachment occurs pursuant to s 19(2) of the PPSA when grantor has rights in the collateral and value is given for the security interest or an act occurs giving rise to a security interest. It is often beneficial for the security agreement to be in writing. You can further strengthen your right to enforce the interest by perfecting the security interest, this means that attachment has occurred, the interest is enforceable against a third party and is registered on the PPSR.
As was seen in the case of Maiden Civil, if a company or business fails to register their security interest, they risk losing legal ownership of their goods to a secured party that has registered their security interest on the PPSR.
Similarly, as a consumer, it is important to search the PPSR prior to purchasing second-hand personal goods to ensure that the property is not encumbered by a prior security interest. If a security interest is held over the property, you risk having these goods repossessed should the grantor default on the conditions of the security agreement.
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Brisbane QLD 4000