Why it is Essential to Register Hire Assets under the PPSA

by Andrew Lind on 3 July, 19

The  Western Australian case of White v Spiers Earthworks Pty Ltd serves as a warning for owners of valuable equipment  to register their security interest on the Personal Property Security Register (PPSR).  If you hire / lease assets to another company and fail to register your interest in those assets under the PPSR, those assets will end up in the hands of receivers if the lessee company falls into liquidation or administration. A comparison can be drawn to the New South Wales case of Maiden Civil (P&E) Pty Ltd (full citation and case summary available here).

The Agreement

Spiers Earthworks Pty Ltd (Spiers) owned and operated an earthmoving and excavation business. In 2010 the Spiers sold their business to BEM Equipment Pty Ltd (BEM).

To do this, the defendant and BEM entered into two agreements:

  • To sell Spiers Earthworks Pty Ltd as a business to BEM (the Business Purchase Agreement);and
  • To sell the equipment of the business under a hire-purchase The equipment (Hire Assets) included motor vehicles, earthmoving equipment, and trailers.

The parties agreed that the market value of the Hire Assets was   $1, 401, 500.

The Voluntary Administration

After continual financial difficulty, on 24 July 2013 voluntary administrators were appointed to BEM.  This was followed by an appointment of Receivers on 31 July 2013 who proceeded to claim assets for the purposes of BEM’s administration. This included Spiers’ Hire Assets.

By the date of administration

  • BEM had not fully paid off the Hire Assets, though they had paid significant sums to Spiers.
  • Spiers had not registered their interest in the Hire Assets with the Personal Property Securities Register (PPSR) prior to the 2012 deadline.

The Receivers claimed ownership of the Hire Assets for the purposes of administration. Spiers argued that the Hire Assets still belonged to them (that is, they owned them).

The Issue Before the Court

The leased Hire Assets were not fully paid off; however Spiers’ interest in the Hire Assets were also not registered pursuant to PPSA laws. Which party, therefore, had the better claim to the Hire Assets?

Held

Le Miere J held that Spiers’ interest in the Hire Assets vested in BEM immediately prior to the appointment of the administrators. This meant that the Receivers could take ownership Spiers’ vehicles and equipment, though not fully paid off.

The Law

In order to prove that the Receivers had a better claim to the Hire Assets than Spiers::

  1. The Hire Agreement between BEM and Spiers had to give rise to an ‘in substance’ security interest (s12 of the PPSA) or a PPS lease;
  2. The security interest of Spiers had to be unperfected when administration commenced (s12(1)(b) and 12 (1)(a) of the PPSA);
  3. The “acquisition of property” had to be on “just terms” (s252B of the PPSA). and
  4. Spiers’ failure to register a security interest in the Hire Assets had to not be affected by s261 of PPSA.

The Legal Reasoning

On each of these sub issues it was held:

  1. The Hire Agreement between Spiers and BEM satisfied an ‘in substance’ security interest as the Hire Agreement secured payment for the assets.

This is because the terms of the Hire Agreement provided:

  • a total amount to be paid for the equipment that was equal to the agreed market value plus interest;
  • BEM with two options to purchase the assets during the lease period.

It was also a condition of the Business Purchase Agreement that the parties enter into the Hire Agreement and therefore the Hire Agreement formed part of the sale of business transaction.

The Court also found that the Hire Agreement was a PPS Lease as, pursuant to s 13 (2) of the PPSA.  Spiers were in the business of regularly leasing earthmoving equipment.

  1. Spiers’ security interest was not perfected as:
  • The Hire Agreement did not meet the criteria outlined under s 12 (1)(b) and 12(2) of the PPSA.; and
  • Spiers’ interest did not meet the alternative criteria of ‘temporary perfection’ outlined under s 12(1)(a) of the PPSA.
  1. The effect of s 267 of the PPSA whereby Spiers’ security interest (in the Hire Assets) vests in BEM, does not result in an acquisition of property within the meaning as s51 (xxxi) of the Constitution, and therefore the requirement s 252B that acquisition of property must be on “just terms” finds no application in this case.
  2. The decision was not affected by s 261(3). This provision provided an exemption for a failure to register under a state law only, not the commonwealth PPSA.

Lessons

If you own any valuable equipment that has been leased to a third party it is important to ensure that you have registered your security interest in the equipment with the PPSR and that this registration takes place quickly after creation (within the time limits in the PPSA). If your personal property interest (which can mean title) is registrable and you fail to complete registration, the lessee of your equipment (or subsequent administrators or liquidators) may have a better title to it than you, the original owner.

{ 0 comments… add one now }

Leave a Reply

Your email address will not be published. Required fields are marked *

*

*

Terms & Conditions

Law Experts content including responses to your questions and comments provides legal information, tips and hints. The content on this site is not legal advice. That’s good, because there’s no risk of getting a bill by making a comment, asking a question or just contacting us.

You agree that any comment or question that you may ask may be published on this site, after editorial review, for the benefit of future readers. Our editors may edit comments in their discretion. For example we will would seek to remove information that would identify you.

The Corney & Lind lawyers (law experts) are of course happy to give legal advice, that’s what they do for a living. However it is only legal advice when you have engaged Corney & Lind Lawyers to provide legal advice for you. Before you do that you want to have an idea of what it might cost and our lawyers are happy to communicate with you about this.

We may change any of these terms and conditions at any time in our discretion by changing them on this page.

You must scroll down the terms & conditions before you can agree.

Previous post:

Next post: