This was the response we recently encountered during a liquidation involving a large logistics and transport business.
With this position, three stakeholders were involved:
- The Company (in liquidation);
- an equipment hire company; and
- a secured lender.
At face value, the position appeared reasonable. PPSR registrations existed. The hire company was the registered owner of the trailers. A third-party lender had funded the equipment. Everyone involved considered themselves protected.
The legal position, however, was very different!
The Company had numerous trailers in its possession under long-term hire arrangements. Those arrangements were open-ended, month-to-month equipment leases and, in substance, constituted PPS leases pursuant to section 13 of the Personal Property Securities Act 2009 (Cth).
Critically, the trailers had remained in the Company’s possession for more than two years. This is where the issues began.
In this matter, the hire company had circa $1 million worth of trailers in the Company’s possession for several years. The issue was not that PPSR registrations did not exist at all. Rather, the registrations had not been perfected against the company actually in possession of the assets. Instead, various registrations had been lodged against the hire company itself. That distinction proved critical.
As cases such as F Forge Group Power Pty Ltd (in liquidation) (receivers and managers appointed) v General Electric International Inc and OneSteel Manufacturing Pty Ltd v Alleasing Pty Ltd emonstrate, the PPSA can produce tough outcomes where perfection requirements are not strictly satisfied. That is precisely what occurred here.
Because the interests were not properly perfected against the grantor in possession, section 267 of the PPSA operated such that the relevant interests vested in the Company upon the commencement of the liquidation.
To make matters more complex, a third-party lender had funded the purchase of some of the trailers and had registered PMSIs over the equipment, with those PMSIs having been granted by the hire company. However, because the Company had retained possession of the trailers for more than two years, section 34 of the PPSA became highly relevant to whether the lender’s PMSIs remained continuously perfected and retained priority.
The result was a perfect PPSA storm:
- assets worth substantial sums vested in the Company;
- the liquidators were entitled to realise the equipment for the benefit of creditors;
- the lender, which believed it held enforceable security, was suddenly exposed; and
- the hire company remained liable to the lender, but without the underlying assets required to satisfy that debt.
Ultimately, the hire company and lender were required to release PPSR registrations to allow the liquidation and realisation process to proceed.
One of the recurring misconceptions we still encounter is: “we own the asset, therefore we are safe”.
Under the PPSA, ownership alone is not enough. A party can have genuine ownership, signed agreements, active financing arrangements and longstanding commercial dealings, and still lose priority because the registration is defective.
Importantly, these issues often remain invisible until an insolvency event forces parties to test the validity of their security interests.
The lesson for financiers, equipment hire businesses, accountants and lawyers is straightforward: registering a security interest is not a “set and forget” exercise.
The PPSR position requires ongoing review, particularly where:
- equipment remains in a customer’s possession for extended periods;
- leases roll over indefinitely;
- entities restructure or refinance;
- security positions evolve over time; or
- registrations were originally prepared years earlier by third parties.
Once an insolvency appointment occurs, there is very little room for commercial arguments or intentions. Either the security interest is perfected correctly, or it is not. By the time liquidators and insolvency lawyers are debating those issues, it is usually already too late.
A Final Thought
The PPSA is indifferent to commercial expectations.
It does not ask what the parties intended, who paid for the asset, or who believed they were protected. It asks whether the security interest was perfected in accordance with the legislation.
In this matter, that distinction changed the outcome entirely.
For those relying on the PPSR, the lesson is clear: never assume that being “secured” means you are protected. Verify it before someone else is appointed to test it.
Article by Frank O’Neill (Director) – Mackay