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Warehouse Lien Trumps PPSR Security Interest

Warehouse Lien Trumps PPSR Security Interest

The following article deals with 2 separate cases where SV Partners were recently involved highlighting the impact of a Warehouse Lien on a PPSR Security Interest and the importance of at least registering an effective PPSR Security Interest.

In the first case, we were appointed administrators to a company which provided warehousing, transport and logistical services to its customers. The business was conducted from leased premises of significant size. Soon into the appointment, the Administrator had to consider the position where one of the company’s major customers no longer wanted to utilise the company’s services and looked to terminate its agreement.

The customer claimed it was entitled to remove all its goods warehoused at the company’s premises by virtue of the agreement it had entered into with the company and its security interest which was registered on the PPSR against the company. Furthermore, the customer claimed it was also entitled to a contractual right of set-off against monies owed between the two entities.

The Administrator’s investigations revealed the customer had properly registered its security interest on the PPSR against the company 11 months prior to his appointment and the agreement entered into between the customer and company provided for the customer in certain circumstances to be able to remove its goods.

The real question was whether the Administrator could prevent this where there were monies owed by the customer back to the company for warehousing and associated services, effectively claiming a warehouse lien.

The simple answer was, yes. A warehouse lien trumps a PPSR security interest. A party’s right to claim a warehouse lien is unaffected by the registration of a security interest under the PPSA.

In Queensland, warehouse liens are governed by the Storage Liens Act 1973 (QLD) (“SLA”). The SLA provides the storer’s lien on goods is declared to be a statutory interest to which section 73(2) of the Personal Property Securities Act 2009 applies and has priority over all security interests in relation to the goods.
In this particular case, the Administrator was able to successfully get the customer to the negotiation table and come to an arrangement for payment of the outstanding warehousing costs as opposed to the company being left high and dry and having to pursue an outstanding debt.

In a separate matter, SV Partners were appointed to a similar business offering warehousing facilities but it also acted as a distributor of the wine stock that was warehoused at the premises. On the appointment of administrators, there was in excess of 30,000 bottles of wine.

In this instance, the majority of the wine stock was claimed to be owned by the suppliers or at least on face value. The suppliers (both international and local wholesale distributors and wineries) were able to produce paperwork which showed they delivered the stock to the company, the stock was clearly labelled and branded and there was a valid distribution agreement between them and the company.

To the surprise of the Administrators, the suppliers had not registered their security interest in relation to the company on the PPSR. As such, on appointment of Administrators, the suppliers were not able to perfect security over their stock and recover it. What actually eventuated in many of the instances was the suppliers deciding to purchase their stock back from the administrators to avoid their stock being sold via auction and to avoid any adverse effect on their brand.

Since the introduction of the PPSA it is a well-known business principle that you should always properly register your security interests on the PPSR, but even doing so your rights may be curtailed on the appointment of an Administrator.

Article written by Terry Rose, Director SV Partners Queensland

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