PPSR Registrations – How Spending $10 Can Save You $460,000

May 18, 2017

The importance of protecting security interests on the Personal Property Securities Register (PPSR) was made abundantly clear in a recent Western Australian decision in Flown Pty Ltd v Goldrange Pty Ltd.

Background

1. A landlord loaned $460,000 to their tenant to enable the tenant to purchase equipment (collateral) for use in the tenant’s business.
2. The landlord took security over the equipment. The landlord did not properly protect its security interest by registering that security on the PPSR.
3. The landlord, becoming aware of the collapse of the tenant’s business and the appointment of an administrator, attempted to terminate the lease on the grounds of insolvency and tried to, but did not actually, take possession of the equipment.
4. Once appointed, the administrator claimed that the equipment had become the property of the administrator on behalf of other creditors of the tenant who did have registered PPSR security, because the landlord’s security interest was not registered.
5. The landlord relied on possession as the basis of protecting his security interest rather than registration on the PPSR.

Possession vs PPSR Registration

Protection of an interest by registering it on the PPSR ensures you have priority over other creditors, simply by paying a small fee and completing the registration within the required timeframe.

To properly protect a security interest a secured party must either:

1. register the security interest on the PPSR; or
2. take possession of the collateral; or
3. have control over the collateral.

The landlord had a security interest over the plant and equipment, but did not register it on the PPSR. The landlord argued that he had protected his security interest by taking possession of the equipment before the appointment of the administrator.

The timeline of events are important in this case, which are as follows:

1. the landlord made an attempt to take possession of the equipment, but failed to do so;
2. the tenant then went into voluntary administration and appointed an administrator;
3. the landlord then made a second attempt to take possession of the equipment by changing the locks on the premises.

The Court held that possession means both apparent and actual physical possession, which the landlord did not have because he failed to take actual possession before the administrator was appointed. Accordingly, the landlord’s security interest ranked behind the secured creditors.

As a result, the plant and equipment passed to the administrator, leaving the landlord out of pocket $460,000 plus costs.

This case is a stark reminder that the cost of registering PPSA security on the PPSR is worth every cent.

For more information or for advice on PPSR registration please contact Michael Cowley or Melissa Hill.