When does the Grantor take possession?

I recently had cause to read a helpful summary of a decision by the South Australian Supreme Court in the matter of Allied Distribution Finance Pty Ltd v Samwise Holdings Pty Ltd [2017] SASC 163.  While much of the background to the case is a little fiddly, I’ll give a short ‘broad strokes’ summary in order to help demonstrate why this might be a very useful decision for the hire industry.

For those wanting a more detailed look, I recommend the summary HERE  or, for those that want a real thrill, the full text of the judgment can be found HERE.

The case concerned Bill’s Motorcycles – a dealer, selling and servicing Kawasaki motorcycles.  Bill’s had been financing its floor stock with one financier but then struck an agreement with another (Allied Distribution Finance – ADF).  Bill’s stock of 40 motorcycles (secured by the original financier) was bought out by Kawasaki and, effectively, sold to ADF.  Bill’s maintained possession of the motorcycles and ADF lodged a PMSI registration on the PPSR to perfect its security interest over them.

When Bill’s went into administration a couple of months later, there was a dispute concerning those 40 motorcycles between Samwise, the holder of a General Security Interest (AllPAAP) over all Bill’s assets and ADF as a PMSI holder.

While a PMSI will usually take priority over an AllPAAP, in this case, Samwise argued that because Bill’s was already in possession of the motorcycles at the time ADF lodged their PMSI registration,  ADF had failed to meet the time-scale requirements of section 62 of the PPSA.

Section 62, effectively, states that, in order to achieve PMSI priority over inventory items, a registration must be lodged before the grantor obtains possession of the property.

Samwise argued that, as Bill’s had already been in possession of the motorcycles for some time before ADF lodged their registration, ADF was not entitled to PMSI priority.

In his judgment, Justice Blue determined that, in the overall context, the implication of section 62 should be taken to mean that the registration must be lodged before the grantor obtains the type of possession that would entitle them to grant a PMSI interest in the property.

Thus it is the grantor’s possession in the role of PMSI grantor that matters, rather than their mere physical possession of the property.

While this is unlikely to be of any assistance to trade credit suppliers forgetting to perfect their Retention of Title rights in time, it may have implications for the long-term hire industry.

Last year, the Government made changes to the manner in which hires and leases were caught up by the PPSA.  In short, the changes involved leases for less than 2 years no longer needing to be registered on the PPSR.  Where a lease was established for an indefinite period that may or may not extend beyond 2 years, the new legislation only required a registration to be put in place once that 2-year limit was breached.

When I posted about the new legislation, I wrote:

In order to be eligible for PMSI super priority where the collateral being used is designated as a non-inventory item, the perfecting registration must be lodged within 15 business days of the lessee taking possession of the property.

 However, where an indefinite lease is concerned and the lessor doesn’t lodge their registration until it becomes clear the lease may extend beyond the new 2 year qualifying period, that 15 business days period may long since have passed leaving the lessor’s claim to their equipment to fall behind those of other general security holders with registrations already in place.

Justice Blue’s decision in the Bill’s Motorcycles case suggests that, while a lessee may have been in physical possession of property for 729 days, it will only be at the 2 year mark they have possession in the capacity of a grantor of a PMSI right and it should, therefore, be at that 2 year point when the PPSA’s 15 business days countdown for a PMSI eligible registration should commence.

Whether this interpretation is sufficient to also satisfy the Corporations Act’s dreaded section 588FL is another matter! 

New PPSA Amendment passes its first reading

The first day of the new season saw the Government introduce the Personal Property Securities Amendment (PPS Leases) Bill 2017.

As the element in parentheses indicates, the Bill concerns an amendment to the manner in which the PPSA deals with leasing arrangements.

At present the PPSA only applies to leases that run for longer than one year, are for a shorter period but allow for extensions that would take them beyond one year, or are for an indefinite period.

The new Bill basically takes that one year qualifying period and extends it to two years.

But before anyone suggests holding off on lodging that backlog of registrations you’ve got piling up, the Bill (if enacted) isn’t intended to apply retrospectively and it’s anybody’s guess as to when it will actually come into effect given that the last amendment of this nature took 15 months to pass and another 3 months to get Royal Assent!

Clearly a lot of lobbying has been taking place behind the scenes because, at least from my point of view, this Bill is something of a surprise – there was certainly no recommendation in the official review of the PPSR to extend the PPS Lease period.

However, the Bill does incorporate an element of one of the Review’s recommendations where indefinite leases are concerned.  If passed, indefinite leases will only require registration once the goods being leased have actually been in the possession of the Grantor for the two year period. 

While this will obviously be a substantial relaxation of the rules for businesses that essentially deal in short term hires but don’t explicitly identify a maximum end date, it will be interesting to see how this ties in to the Corporations Act - s588FL of which pretty much requires registration within 20 business days of the leasing agreement being signed to avoid risking losing hired goods to any liquidator appointed within 6 months of the actual registration date.

UPDATE: This Bill was formally passed on Thursday 11th May and will come into effect as soon as it has Royal Assent.

Progress of the PPSR Review Report

It's been around 18 months since Bruce Whittaker's final report of the Review of the Personal Property Securities Act was tabled in parliament.  The report made a little under 400 recommendations concerning ways in which the PPSR could be improved - many of which involved substantial simplifications to the registration process.

So, in the absence of any update as to progress in following up the report's recommendations I decided to write to the Attorney General's Department to ask how things were progressing.  In truth, I had almost forgotten I'd done so, but, this afternoon, I received a reply.

I reproduce the body of the reply, in full, below (drafting errors included), but first I'll show you my original request, and leave it to you to judge to what extent the response addresses the request.

My request:

It's been about 18 months since Bruce Whittaker's Final Report of the Review of the Personal Property Securities Act was tabled in Parliament.   

I'd like to know what progress has been made since that time in moving to implement its recommendations, both legislatively and operationally.  I'd also appreciate an indication as to the timetable for implementation.

The AGD's response:

Dear Mr Miller,
  

Thank you for your enquiry regarding the progress of the independent statutory review (the Review) of the Personal Property Securities Act 2009 (the Act). The Review makes 394 recommendations aimed at reducing complexity and improving the accessibility of both the Act and the Personal Property Securities Register and includes number of recommendations which would reduce the regulatory burden on the equipment hire industry.
  

The Government is working towards implementation of these reforms while ensuring that the rights and interests of all parties are given due consideration. Reform to the Act will have an economy-wide impact and must be executed with due care and diligence. The Act carefully balances the rights of secured parties, lessors and financiers on the one hand, against those of grantors, lessees and borrowers on the other. The response to the Review must be progressed as a comprehensive package rather than in an ad hoc fashion, if it is to achieve the aim of reductions in complexity and regulatory burden without prejudicing the interests of any party.
  

The Attorney-General’s Department hopes to be in a position to provide information about implementation time frames in the near future.

 Thank you again for your enquiry.

PPSR Changes the Definition of 'Motor Vehicle'.

We all think we have a pretty good idea as to whether something is a motor vehicle or not.  And when it comes to cars, trucks, motor bikes etc we’re on pretty safe ground, but what about ride-on lawnmowers (or even a motorised lawnmower that isn’t a ride-on) or fork lift trucks or cranes or motorised shovels etc.?  This is where things become substantially less clear cut and we begin to grudgingly accept that a formal definition might not be a bad idea.  

However, the definition that the PPSA has been using may have been a little too all embracing:

The item is a motor vehicle under the PPS Act if it is built to be propelled wholly on land by a motor that forms part of it (but not if it runs on rails, tram lines or other fixed path), has a unique serial number and is also capable of travelling at more than 10km/hr OR has a total motor power greater than 200W.

I suspect that it is this speed OR power component of the definition that would allow certain lawnmowers to suddenly become motor vehicles.

However, from today (1^st July 2014) this has all changed with that OR being changed to AND.

Yes, indeed, this is a massive shift and perhaps, at long last, all those that have been clamouring for this change will finally be able to rest easy.

The new motor vehicle definition is, henceforth:

The item is a motor vehicle under the PPS Act if it is built to be propelled wholly on land by a motor that forms part of it (but not if it runs on rails, tram lines or other fixed path), has a unique serial number and is also capable of travelling at more than 10km/hr AND has a total motor power greater than 200W.

By the way, there has been no change to that part of the definition that allows for property that can be towed at speeds of more than 10km/h to be classed as motor vehicles, such as caravans, trailers and…

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