The receivers tried to take this company’s stuff and you won’t believe what happened next

OK, we apologise for the clickbait headline, but this is an article about the Personal Property Securities Act 2009 (Cth) (the PPSA) – and we know that much of the PPSA is so snooze-worthy that cases concerning its application are recommended by 9 of 10 doctors as emergency substitutes when your prescription sleeping medication runs out.

However, the PPSA has wrought enormous changes to the law in relation to security interests in personal property (or “stuff”), and as this case shows, the failure to register your security interest (or to appreciate that there is a security interest which you need to register) can lead to you needing to sue to get your stuff back, especially where your stuff is in the hands of a company which becomes insolvent.

The case concerned a Wyoming company had stored a bunch of its stuff with its Australian subsidiary, Welldog Pty Ltd.  In March 2017, Welldog became (financially, at least) UnWelldog, and its directors appointed administrators.  The appointment of administrators triggered the appointment of receivers under a General Security Deed which Welldog had granted to its secured creditor.

The receivers argued that the Wyoming company’s stuff now belonged to Welldog, and could be sold as part of the business of Welldog.  This argument was premised on the fact that the stuff had been provided to Welldog in circumstances which satisfied the requirements for a “deemed PPS lease” under the PPSA.

If this was right, then because the security interest arising under the deemed PPS lease had not been registered on the Personal Property Securities Register (the PPSR) it was an “unperfected security interest” under the PPSA.  When administrators are appointed to a company, any unperfected security interest granted by the company vests in the company (to the exclusion, and often to the considerable chagrin, of the entity which thought it had the benefit of the unperfected security interest).  Accordingly, said the receivers, the appointment of administrators to Welldog had the effect that title to the Wyoming company’s stuff now vested in Welldog, and the stuff was Welldog’s to sell.

As might be expected, the Wyoming company objected strenuously to this argument, not least because the Wyoming company did not consider that it had leased (either in a deemed way or otherwise) its stuff to Welldog. This made it necessary for the Court to go through the factual circumstances to see whether the elements necessary to give rise to a deemed PPS lease could be established.

The receivers started well; the Court determined that there had been bailments of the stuff to Welldog, and that the bailments of the stuff were for indefinite terms (which were the first two points which the receivers needed to establish in order to show a deemed PPS lease).  However, the Wyoming company ultimately succeeded, because the receivers could not establish that the Wyoming company was “regularly in the business of bailing goods”, which is an element necessary to establish a deemed PPS lease.

The receivers also could not establish that Welldog had provided “value” for the bailments (which is a further essential element of a deemed PPS lease).  Even though the Wyoming company expected that it would receive payments if Welldog used the stuff in the performance of Welldog’s work, there was no specific payment for the provision of the stuff to Welldog, and thus no “value” in the necessary sense.

So, the Wyoming company did ultimately get its stuff back (although, of course, it was necessary to litigate to get to that result).  The main lesson from the case is that the PPSA can reach into factual scenarios well beyond the run-of-the-mill situations where money is lent on the security of personal property. If your business involves giving your stuff to other people (or extending credit in relation to the stuff you provide), you need to consider very carefully what you need to document and what you need to register on the PPSR. If there is something which you need to register, but haven’t registered, you are “unperfected”, which means that in an insolvency situation, your “security interest” becomes anything but.

So, given the serious consequences which can arise if you don’t know the A to Z of PPSA, let us know if we can assist.  After all, as dry and snooze-worthy as much of the PPSA is, this is an area of the law in which one should always bear in mind the old saying that, “if you snooze, you lose”.

For more on our PPSA law capabilities, contact Philip Stevens or William Han

For more on our litigation capabilities, contact Dennis Vuaran or Angus Macinnis or Grace Hur

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September 28
Commercial Law Litigation and dispute resolution PPSA Law