Many of you may have heard of the Personal Property Securities Act (PPSA) or the Personal Property Security Register (PPSR) which came into existence on 30 January 2012.
A recent case has highlighted exactly how this new legislation works and is a warning to anyone who lends money or leases assets to another party but fails to register that interest on the PPSR.
By way of background, the PPSA commenced on 30 January 2012 but was subject to a two year transitional period which ended 31 January 2014.
These rules make reference to three key terms - Secured party, Collateral and Grantor.
The Secured party is the lender or owner of the asset, the Collateral is the security interest in the personal property and the Grantor is the borrower or lessee.
A security interest is basically a “charge” taken over a property to secure the payment of an obligation.
It should be noted that the definition of personal property does not include land.
Where the Grantor defaults on their payment obligation, the Secured party can typically seek to enforce their interest to recover the monies owed to them.
However, it is possible that multiple parties have a security interest in the same item of Collateral.
The obvious question becomes, whose security interest takes priority?
The PPSA contains a comprehensive set of rules that determines which of the competing interests takes priority.
One of the key principles is that a “perfected” security takes priority over an “unperfected” security interest.
To assist, the PPSA created the PPSR.
The PPSR is the mechanism by which a Secured party can register their security interest.
In doing so, they will have “perfected” their security interest that will then take priority over any “unperfected” or unregistered security interests.
The facts of Pozzebon v. Australian Gaming and Entertainment Limited  FCA 1034 provide a real life example of how the PPSA and PPSR work.
On 24 December 2013 trustees of the Pozzebon Family Superannuation Fund agreed to lend $250,000 to Australian Gaming and Entertainment Limited.
On 19 May 2014, when it became evident to the trustees of the Pozzebon Family Superannuation Fund that Australian Gaming and Entertainment Limited were in financial trouble, they registered their interest on the PPSR.
One week later, on 26 May 2014, Australian Gaming and Entertainment Limited was placed into voluntary liquidation with only one relevant asset – a bank account containing almost $900,000.
On 1 July 2014, Australian Gaming and Entertainment Limited was placed into liquidation.
The court found that as the trustees had failed to register their interest on the PPSR within 20 business days of the creation of the loan, they had not “perfected” the registration. The trustees were therefore deemed to be unsecured creditors and, as the Judge noted, there was a real question whether any assets would remain to satisfy the debt owing to them.
This story is a warning to anyone who lends money or leases assets to another party that they should seriously consider the application of the PPSA and the PPSR on the leasing situation.
If you have any questions regarding the PPSA or PPSR, please contact Ellingsen Partners.