Scenario
Eyes & Ears Pty Ltd sells and installs audio visual equipment; a portion of their stock is bought from Sight n Sound Ltd.
Sight n Sound sell to Eyes & Ears on credit terms
subject to a Retention of Title clause.
While this clause allows for Eyes & Ears to on-sell the goods that Sight
n Sound has supplied it also provides for Sight n Sound to be able to recover
any unsold Sight n Sound sourced products for which Eyes & Ears have failed
to make payment in a timely manner.
Under the Personal Property Securities Act Cth 2009 (PPSA),
such a Retention of Title clause is treated as a security interest (Section 12(2)(d) refers) and, as such, Sight n
Sound has registered that security interest on the Personal Property Securities
Register (PPSR).
In accordance with the PPSR’s rules Sight n Sound has
registered their security interest as follows:
Collateral Type: Commercial Property (as distinct from Consumer Property);
Collateral Class: Other Goods (the PPSR does not provide
for a more specific designation for tangible property that is not required
under the Act to be identified by serial number);
Inventory: Yes (to identify the use to which the
goods being sold are put);
PMSI: Yes (designating the security interest
as a Purchase Money Security Interest, this identifies that the
goods/collateral in question are acting as security for their own purchase);
and
Proceeds: Yes – All present & after acquired
property (recognising the rights of Eyes & Ears to on-sell their
product, Sight n Sound’s security interest extends to any proceeds arising from
such on-sale, regardless of the form such proceeds might take, as long as the
original supply remains unpaid).
Eyes & Ears is in the process of selling real estate
property and the solicitor acting on behalf of the prospective purchaser has
asked that Sight n Sound release the real estate property in question from the
charge they have registered on the PPSR as a condition to the real estate
transaction progressing.
Opinion
1. The PPSA does not apply to collateral in the form of real estate or to any fixtures attached to such property.
1. The PPSA does not apply to collateral in the form of real estate or to any fixtures attached to such property.
Confirmation is available from the PPSR’s web site at www.ppsr.gov.au where it clearly states that:
Under the Personal Property Securities Act 2009 (Cth), personal
property is defined as any form of property other than land, buildings or fixtures that form part of it or a
right (such as water rights), entitlement or authority.
Reference may also be made to Section 8(1)(j) of the PPSA
which specifically identifies fixtures
as an item of property to which the Act does not apply and Section 10
which defines the Act’s use of the term fixtures.
8 Interests to which this Act does not apply
8 Interests to which this Act does not apply
(1)
This Act does not apply to any of
the following:
(j) an interest in a fixture;
and
10 The Dictionary
In this Act:
fixtures means goods, other than crops, that are affixed to land.
2. Sight
n Sound’s security interest resides solely in goods supplied by Sight n Sound
to Eyes & Ears as well as to any proceeds arising from the sale or disposal
of those goods for as long as monies remain outstanding to Sight n Sound for
the sale of those goods. Sight n Sound’s
registration does not perfect any security interest in any other property or
assets held by Eyes & Ears.
3. Even
were there to be some hitherto unheard of interpretation of the PPSA which
would allow that Act to apply to real estate property in this context and
collateral from Sight n Sound was incorporated into that real estate property
then Sight n Sound’s PPSR registration should still not be considered an
obstacle to the sale of that property by virtue of Section 32 of the PPSA.
Section 32 effectively
extinguishes Sight n Sound’s continued security interest in the goods
themselves, once those goods have been on-sold, and transfers that interest to
any proceeds arising from the on-sale.
32 Proceeds—attachment
(1) Subject
to this Act, if collateral gives rise to proceeds (by being dealt with or
otherwise), the security interest:
(a) continues
in the collateral, unless:
(i) the
secured party expressly or impliedly authorised a disposal giving rise to the
proceeds; or
(ii) the
secured party expressly or impliedly agreed that a dealing giving rise to the
proceeds would extinguish the security interest; and
(b) attaches
to the proceeds, unless the security agreement provides otherwise.
While there may be exceptions to such a situation should the collateral in question be described by serial number in Sight n Sound’s registration that is clearly not the case in this instance.
Had the sale of real estate been
a normal part of the business of Eyes & Ears it would have also been
relevant to have quoted Section 46 of the PPSA which allows for purchasers of
the on-sale to take such property free of any security interest where the on-sale
would constitute an action “in the ordinary course of the seller’s business”.
46 Taking personal
property free of security interest in ordinary course of business
(1) A buyer or lessee of personal property takes the personal
property free of a security interest given by the seller or lessor, or that
arises under section 32 (proceeds—attachment), if the personal property was
sold or leased in the ordinary course of the seller’s or lessor’s business of
selling or leasing personal property of that kind.
Conclusion
Not only is there no justification for Sight n Sound to discharge their correctly registered security interest but to do so would seriously impact upon the effectiveness of Sight n Sound’s security interest in respect of its on-going trading with Eyes & Ears.
Similarly, there is no justification/need for Sight n Sound
to make any amendments to their existing registration.
While it is not considered at all necessary and would only
serve a ‘cosmetic’ purpose it would not prejudice the effectiveness of Sight n
Sound’s security interests were Sight n Sound to execute a Deed of Release
along the lines of the draft shown after the following disclaimer.
Disclaimer
Please note that nothing in this document should be taken as formal legal advice and neither the author nor his employer accept any liability for any negative outcome that may arise from actions taken after it has been read.
Deed
of Release
Addressee: [the entity seeking the release]
Secured
Party: [your company – as per your PPSR registration]
Grantor:
[the debtor – as per your PPSR registration]
Security
Interest: Any security interest (including a “security interest” as defined
under the Personal Property Securities Act 2009 (Commonwealth)) held by
the Secured Party in respect of the Released Property.
Date: [date this release is intended to take effect]
Released Property: [description of the property for which the release is
required]
The
Released Property is released from the Security Interest on the date of this deed. Nothing in this deed releases, terminates or
otherwise affects any debts or liabilities of the Grantor or any other person
secured by any Security Interest to the extent such debts or liabilities remain
outstanding at the date of this deed or arise after the date of this deed.
This
document is governed by the law in [insert relevant
State of jurisdiction] and the Secured Party submits to the nonexclusive
jurisdiction of the courts of that place.
Executed
by the Secured Party as a deed poll
EXECUTED
AS A DEED by
as
attorney for …………………………. under power of attorney dated ……………….
in the
presence of: ........................................................
Signature
of witness: ........................................................
Name
of witness (block letters):
........................................................
By executing this deed the attorney states that the
attorney has received no notice of revocation of the power of attorney.
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