February saw the collapse of WA based builder Cooper & Oxley accompanied by scenes of subcontractors climbing over fences and evading security guards in order to attempt to recover tools and equipment that they had left on project sites. You can find an example here.
Since then, there has been an understandable increase in advice being offered to subcontractors as to how they might be able to protect themselves. What has been less understandable, however, is the oft-repeated suggestion that a registration on the PPSR might act as some sort of golden ticket allowing a subcontractor to recover any of their gear they might have had stored on site.
If you are selling goods subject to a right to recover those goods if you’re not paid for them, then a registration on the PPSR is essential if you want to be able to exercise that right against a liquidator or administrator etc. Similarly, if you are engaged in a long-term hire of goods (and by long, I mean at least 2 years) then, again, registration is essential to protect those goods from falling into the hands of an Insolvency Practitioner.
However, such leasing arrangements and conditional sale agreements are specifically deemed to create security interests under the PPSA; simply storing your tools on a building site overnight is not.
When a company goes into liquidation, the liquidator is entitled to treat any property that is used as collateral in a security interest as having vested in the insolvent company and thus available to be liquidated for the benefit of creditors. The only real exception to this is where that collateral/security interest has been registered on the PPSR.
Because a subcontractor’s tools are not the subject of a sale (conditional or otherwise) to the insolvent company and are not being leased to them, the liquidator has no right to treat them as if they were the property of the main contractor. If they're not collateral in a security interest, there's no danger of them vesting in the insolvent company.
If that is the case, why do we read about subcontractors and tradies being locked out of sites, unable to recover their tools?
One of the first jobs a liquidator needs to do, on arrival, is to take stock and evaluate what assets the company might hold. They can’t do this effectively (or fairly) if there is a steady stream of people marching onto the site and walking off with whatever property they can lay their hands on – some of it may well be their own but some of it may be the company’s and some may actually belong to other subcontractors.
In this sense, the liquidator is a little like the coroner arriving at the site of a freshly discovered body in popular American TV shows. Their first job is to protect the integrity of the crime scene and then, gradually, determine to what extent the items found in and around that scene were relevant to the body and the means by which it came to be dead. If you happen to have lost your car keys in that area, it will be understandable if you have to wait a while before you can get them back!
And so it is with a liquidator, they’ll need to ensure they can identify what goods belonged to the company and what belonged to subcontractors and then they’ll need to ensure that the right gear is made available to the right subcontractor. To do this properly will, unfortunately, take time.
From subcontractors I’ve spoken to, while the delay in getting their gear back is extremely frustrating, they do eventually get their stuff back and, if they don’t, it’s invariably because it had been taken by another subcontractor trying to grab what they could, presumably, in an attempt to offset money owed to them by the company.
Not only is a registration on the PPSR not necessary and will do nothing for the rights of the subcontractor in recovering their tools, it may even create confusion, leading to further delays in the subcontractor being reunited with their gear.
There’s been a suggestion that, while it won’t be perfecting a security interest, a PPSR registration might nevertheless serve as some sort of ownership document ‘proving’ that certain tools belong to the particular subcontractor.
Given that a PPSR registration can be lodged by anyone, for anything against anybody so long as they have a credit card with an available balance of at least $6.80 and that there’s no checking or verification that its details bear any relationship to reality, there is absolutely no way that a liquidator is going to accept a PPSR registration along these lines at face value.
Liquidators spend large amounts of their time picking holes in, and generally finding fault in, PPSR registrations and will not be convinced by a registration that, effectively, says that “a box of spanners and a hammer with a red handle” are owned by a particular tradie. Even being able to identify tools by serial numbers won’t be treated as any evidence of ownership.
If proving ownership is the issue, it will be far more effective simply to have your name inscribed/labelled on the tool than to have it registered on the PPSR.
In short, while suppliers selling goods on Retention of Title terms, and hire companies, hiring goods on a long-term basis would be foolish not to register their interests on the PPSR, it would be foolish for subcontractors and tradies, looking to protect their tools, to think that a PPSR registration would be of any help.
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