On 30 January 2012 the Personal Property Securities Act 2009 (Cth) (PPSA) established a new system for registering securities over personal property. All security interests over personal property must now be registered on the Personal Property Securities Register (PPSR) making it a nationwide noticeboard.
Since its establishment, the PPSA has been considered in a number of cases before superior Courts. From those decisions it is clear that the PPSA has done away with the longstanding legal concept of ownership in personal property. It no longer matters who holds the legal title to personal property. What now matters is who registered their interest first on the PPSR.
In the case of Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors  NSWSC 852 (the Caterpillar case) the Court considered the impact of the PPSA on the concept of ownership. The Court made it clear that the "owner" of the property in the traditional sense of the word had lost their rights to the property as a result of their failure to register their interest on the PPSR.
The Caterpillar case concerned a dispute over three Caterpillar excavation machines. Queensland Excavation Services Pty Ltd (QES) purchased the Caterpillars from Hastings Deering on finance. QES then leased the Caterpillars to Maiden Civil P&E Pty Ltd (Maiden) for construction work in the Northern Territory. Maiden decided to seek finance from Fast Financial Solutions Pty Ltd (Fast Financial). In order to secure the loan from Fast Financial, Maiden provided Fast Financial with security over all of its assets. As a matter of interest, the assets of Maiden (now commonly known as "collateral") included the three Caterpillars, for reasons explained later.
When Maiden subsequently defaulted under the loan, Fast Financial appointed receivers and mangers over all of Maiden’s assets, including the Caterpillars. On 27 August 2012, Maiden went into voluntary administration, and then liquidation, on 24 September 2012, pursuant to a creditors' voluntary winding up. The Court was then faced with the question of: who was the true owner of the three Caterpillars?
Initially, the Court found that QES was the true owner. However, the Court applied the PPSA and concluded that despite QES being the true owner these types of disputes "cannot [now] be resolved through the determination of who has title to the collateral, because the dispute is one of priority, not ownership ". Priority lies with the party who first registered their interest in the property on the PPSR over any other party who (may be the true owner) but failed to register their interest on the PPSR. Importantly, with particular types of leases, hire agreements or even bailments (simply lending property to someone else), the PPSA deems those arrangements to be transactions which ought to be registered. Further, the leasehold interest of a company is an asset which can be charged or secured in favour of another lender (such as Fast Financial). If the PPSA then strips away the rights of the leasing company, because of the failure to register its interest (now known as "perfecting the security"), then the rights to those leased assets fall to the other secured creditor.
The lesson to be learnt is: register, register, register. The default provisions of the PPSA give priority to the party who registers first and thereby perfects their interest first. Holding legal title to the property alone will not resolve a dispute in your favour.
We are still surprised by the large number of savvy business people, including accountants, with well structured business models including family discretionary trusts that fail to secure the assets by registering their interest on the PPSR. Where a corporate trustee owns plant and equipment on behalf of a Trust and a separate trading entity uses that plant and equipment then this arrangement is likely to be deemed a PPSA lease. The corporate trustee needs to register its interest in the plant and equipment against the trading entity or may lose its plant and equipment to a liquidator of the trading entity.