PPSA case note: the owner, the lessor, the lender and the lien

When a company becomes insolvent there’s usually an argument between the company’s receivers or liquidators and anyone owed money by the company (including suppliers and lessors) over the right to any valuable equipment or stock.

Since 31 January 2012 the Personal Property Securities Act (PPSA) answers the question of which registrable security interest has priority to possession of the company’s assets (except for land).

The recent decision of In the matter of Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors [2013] NSWSC 852 is the first court decision to give practical confirmation of the operation of priority rules in the PPSA.

In this case the argument was over who was entitled to possession of 3 pieces of Caterpillar construction machinery (one wheeled vehicle and 2 tracked vehicles) located in the Northern Territory.

The Supreme Court of NSW decided that, under the PPSA, the third party lender’s registered security interest over the lessee’s equipment had priority over the unregistered interest of the equipment lessor.

In dispute were the receivers of Maiden (who were appointed in July 2012 by Maiden’s lenders who had registered a PPSA a security interest in all 3 machines) and QES which originally purchased the equipment and had leased it to Maiden for more than a year. After Maiden went into receivership QES re-hired 2 of the machines to other parties. QES had not registered its lease to Maiden on the PPSR or its predecessor register in the Northern Territory.

One piece of equipment had been fully paid for by Maiden but a lien was being claimed by another party which had possession of it.

The dispute required decisions as to who was the true owner of the equipment and, if it was QES, whether its rights were superior to those of Maiden’s secured lender.

The NSW Supreme Court decided that Maiden was the owner of 1 machine and QES owned the other 2 machines.

But possession was decided by whether Maiden’s lender’s registered security interest gave it better rights to possession than QES.

QES argued that it had until 30 January 2014 to register its “transitional security interest” as lessor.

However the court decided that as the equipment came within the definition of “motor vehicle” and had serial numbers it could have been registered in the NT motor vehicles register before PPSA commenced and the transitional registration provisions did not apply.

Judge Brereton rejected QES’s submission that because Maiden was a mere lessee, under a lease that had since been terminated, and did not have title to the equipment, the lender could not deal with the equipment.

He concluded that under PPSA section 55(3) a perfected security interest has priority over an unperfected security interest.

The Court ordered delivery of the machinery to the receiver.

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