When Transitional Arrangements Don’t Apply

The PPSA and its transitional provisions got another run through the courts in the case of The Receivers of Maiden Civil (P&E) Pty Ltd & Others v Queensland Excavation Services Pty Ltd & Others NSWSC 852 in which a decision was handed down last week.

In many ways the case is not especially noteworthy (other than by virtue of involving the PPSA) and is mainly being cited as confirming what was pretty much accepted anyway:

That the supplier of unpaid for goods will lose them to the liquidator of the company to which they had been supplied unless the supplier holds a perfected security interest over them.  (Section 267 of the PPSA refers).

This will apply whether the goods have been supplied under a contract of sale, leasing arrangement, consignment stock agreement etc.

In the case of Maiden Civil v QES the supply was under a long term leasing arrangement.

Leasing arrangements are deemed by the PPSA to automatically qualify for security interest status by their very nature (sections 12 and 13 of the PPSA refer).

What was particularly interesting to me; however, was why the court determined that the lessor’s security interest had not been perfected by the PPSA’s transitional rules.  The leasing arrangement had been put in place long before the start date of the PPSR and there was nothing about the lease that exempted it from the purview of the PPSA so why no transitional protection?

The answer appears to lie in section 322(3) of the PPSA. 

322(1) covers when the perfection of a transitional security interest begins, 322(2) covers when that perfection ends and 322(3) covers exceptions as follows:

(3)               Subsections (1) and (2) do not apply to a transitional security interest in collateral if the interest is of a class prescribed by regulations made for the purposes of this subsection.

Unfortunately, this didn’t make things much clearer to me until I opened up the Personal Property Securities Regulations 2010.  This is a formal legislative instrument that, among other things, provides a definition of Motor Vehicle and Watercraft and provides some rules relating to access to the PPS Register.

It also, at regulation 9.2, clarifies what is meant at 322(3) of the PPSA, by stating:

         (1)   For subsection 322 (3) of the Act, a transitional security interest is prescribed if, before the registration commencement time it was:

               (a)    registrable on a transitional register, under legislation that conferred priority on security interests that are registered; and

               (b)    not registered.

What this means in practice is that, because at the time of entering into the Leasing arrangement there was already a perfectly good pre-PPSR register in place for registering such interests (in this instance the NT Register of Interests in Motor Vehicles and Other Goods) that was not used, the PPSA’s transitional rules will not apply.

Basically, if you didn’t have your act sufficiently together to register your security interests on the appropriate register before the PPSR was introduced then you can’t rely on the PPSA’s transitional rules to save you when things go wrong!

There’s an excellent overview of the full circumstances of the Maiden Civil case to be found at http://www.herbertsmithfreehills.com/insights/legal-briefings/key-ppsa-decision-nswsc-confirms-vesting-of-unperfected for anyone interested in reading further.