22 / 68
22
HIRE AND RENTAL NEWS • MAY 2016
INDUSTRY NEWS
To recover a debt secured over personal
property, you need to start with the end in
mind. So our top way is:
1. Ensure the security transaction is
managed by an expert
The omission of little things can make a
big difference, for eg: trying to enforce a
security interest by the appointment of
an administrator where the lawyer had
forgotten to stamp the general security
agreement, as in the Photios case [2015]
NSWSC 336. Although the case went on
to determine this could possibly be cured
retroactively by the subsequent payment
of duty, about $50,000 in legal fees were
incurred in solving the problem.
We were pleased the general security
agreement (drafted by us) which became
the subject of judicial scrutiny in another
case – the Bluenergy case [2015] NSWSC
977 – passed muster.
2. Don’t hesitate, litigate
The facts of the Bluenergy case are
interesting. The secured creditor (SC)
had a security interest in all present
property and after acquired property of
the company. The company entered into
a deed of company arrangement (DOCA)
but the SC had not voted in favour of
the relevant resolution and so it was not
prevented from realising its security.
The SC delayed taking action but then
realised the effect of the DOCA was to
augment the assets of the company.
The Court held the SC retained the
benefit of the security, however s444D(2)
of the Corporations Act operated such the
benefit only operated over the securitised
assets which existed immediately before
the DOCA came into existence.
By the time the SC took action, almost
all of the present property held by the
company immediately before the DOCA
was signed had disappeared – it no
longer existed. As the security interest
did not extend to property acquired after
the DOCA was entered into, the secured
creditor recovered very little.
3. Manage the Personal Property
Securities Register (PPSR)
In Capital Finance [2015] NSWSC 1327,
Capital Finance Australia financed
The best six ways to recover a Personal
Property Securities Debt
By Leigh Adams – Leigh Adams Commercial Lawyers
the purchase of a motor vehicle and
registered its security interest. On default,
it repossessed the vehicle but before
the sale, a third party claimed to have
bought it and to have paid part of the
purchase price. The Court said the third
party did not have a security interest but
could have had a purchaser’s lien if it had
possession of the motor vehicle. However,
the vehicle was with the financier.
Compliance with the PPSR won the day.
4. Know how to use the PPSR
In January 2012, a luxury car was bought
at a substantial discount. It began to
show mechanical problems. A PPSR
search subsequently showed the car had
been written off in another State.
This information was successfully used
in the subsequent litigation to recover
damages for breach of contract which
arose from the mechanical problems.
5. Make sure your employees are
authorised
In another case, Primaplas supplied resin
to Gelpack under Retention Of Title terms
prior to the start of the PPSA.
When the PPSA started, Primaplas sent
through new terms and conditions
(Ts and Cs) and registered its security
interest. The operations manager of
Gelpack signed the new Ts and Cs but an
argument arose as to whether he had the
authority to do so.
The Court held Gelpack was bound by
the new Ts and Cs even if the operations
manager didn’t have authority.
If the operations manager had had a
written employment agreement setting
out his duties and authority in detail, the
stress and cost of the litigation could
have been avoided.
6. Handle those security interests
over trust assets with care
For several years we have strongly held
to the view a security interest over a trust
must be registered by way of providing
the ABN of the trust when registering the
security interest on the PPSR. Persons
opposed to this view have included those
who argue it can be perfected by way of
registering the security interest against
the ACN of the trustee company and then
relying on the general law which provides
the trustee has a right of reimbursement
of claims against it out of the trust assets.
We believe this argument is full of holes.
(a) What if the trust deed limits
the amount of debt that can be
reimbursed?
(b) What if the trust deed puts limits on
the type of debt or claim in respect to
which reimbursement can be claimed?
(c) How is the validity of such a
registration (against the trustee’s ACN)
impacted by sections 164 and s 165 of
the PPSA? Our bet is Section 165(b)
will render the registration ineffective.
(d) Registrations against the trustee’s
name (where possible in conjunction
with the ACN) ought to be avoided
because changing the trust’s name
down the track is a good way to cause
additional confusion if that is what the
trustee (as creditor) wants to do.
7. Start your debt recovery in the
right Court
In another case, the security agreement
was governed by Victorian law. But the
litigation was commenced in NSW which
was the primary place of business. In
addition, many of the witnesses were in
NSW and most of the personal property
(68 motor vehicles) were in NSW.
Despite challenge to transfer the
proceedings to Victoria, the proceedings
remained in NSW.
Getting the Court location right can save
thousands of dollars in legal fees, as well
as travel costs and accommodation costs.
Contact Leigh Adams: 02 9964 0022.
"If the operations
manager had had a
written employment
agreement setting
out his duties and
authority... the stress
and cost of the litigation
could have been
avoided."