By now, most people in business will have been warned of the need to perfect their “security interests” in personal property, typically by registration on the Personal Property Securities Register (PPSR). A failure to do so can result in a secured party’s interests being extinguished in favour of the grantor of the interest in the case of insolvency, and in favour of third parties in the case of certain types of dealings.

Registration on its own, however, is not enough.

In Carrafa, Gountzos & Lofthouse (as liquidators of Relux Commercial Pty Ltd (in liq)) & Anor v Doka Formwork Pty Ltd [2014] VSC 5709 (14 November 2014), His Honour Justice Sifris in the Supreme Court of Victoria delivered a very expensive reminder to a lessor of goods that it is also essential that any security interests be registered within the prescribed timeframe. In that case, leased equipment comprising formwork and associated equipment valued at over a million dollars was effectively lost to an insolvent lessee.

The lessee, Relux, operated a construction business specialising in pouring, laying and erecting large concrete slabs and panels. In the course of that business it leased formwork equipment from Doka from at least March 2013. Some of the equipment was leased and delivered prior to 21 January 2014, whilst other equipment was delivered pursuant to leases commencing on 26 February 2014 and 14 March 2014.

As is typical in plant and equipment hire agreements, Doka’s general terms and conditions provided that the rental duration ended only when the relevant equipment was returned. Sifris J thus found that each of the leases were for an indefinite period. One consequence of that finding in the circumstances of the case was that the lease was held to satisfy the definition of “PPS lease” in the Personal Property Securities Act 2009 (Cth) (PPSA). Such leases are deemed to give rise to security interests in favour of the lessor, which must then be perfected in order to avoid the consequences noted earlier.

In this case, Doka sought to protect itself by registering a security interest in Relux’s commercial property on the PPSR on 20 February 2014. On 7 April 2014, Administrators were appointed to Relux, and the company was subsequently put into liquidation on 16 May 2014. The liquidators then sought a declaration as to which of Relux or Doka had the superior right to the leased equipment.

The critical issues were whether s588FL of the Corporations Act 2001 (Cth) applied and, if so, whether Doka had registered its interest within the time prescribed under that section.

Section 588FL provides that certain security granted by a company to which the PPSA applies, which are enforceable against third parties at the “critical time” and perfected solely by registration, will vest in the company upon that company being wound up or put into administration or executing a deed of company arrangement unless it was registered within the prescribed timeframe. In the circumstances of the case, the critical time was the date on Relux’s administration began, ie 7 April 2014. To satisfy the timeframe under s588FL, Doka’s interests needed to have been registered before the later of:

  • six months before the critical time (7 October 2013); or
  • the earlier of:
    • 20 business days after the security agreement that gave rise to the security interest came into force; or
    • the critical time of 7 April 2014.

Sifris J held that, by reason of s588FL(4)(a), Doka’s PPSA security interests in all formwork equipment except for equipment leased on 26 February 2014 and on 14 March 2014, had vested in Relux immediately before Administrators were appointed to Relux on 7 April 2014.

His Honour reasoned that the 20 business day period for any equipment delivered prior to 21 January 2014 expired on 19 February 2014. Accordingly, the prescribed timeframe under s588FL for registration of that security interest expired on 19 February 2014. As registration was not effected until after that date, ie on 20 February 2014, Doka’s security interests in those items of equipment had vested in Relux.

In contrast, the 20 business day registration periods for equipment leased pursuant to the leases commencing on 26 February 2014 and 14 March 2014 did not expire until 27 March 2014 and 11 April 2014 respectively. Applying s588FL, the prescribed periods by which those interests had to be registered did not expire until 27 March 2014 and 7 April 2014 respectively. As such, Doka’s security interests under those leases did not vest in Relux.

 

Author: Brian Lambert

Contact: + 61 7 3251 6777.

Warning: The content of this casenote is intended only to raise the awareness of readers to the issues discussed. It is not intended to constitute, and should not be relied upon as advice of any kind. Readers should seek specific legal advice regarding their particular circumstances.