Hire and Rental News - May 2018

he amendments to the PPSA in May 2017, to remove ‘indefinite’ hire from the ‘PPS lease’ definition and to extend the PPS lease time threshold to two years, took much of the sting out of the PPSA for the equipment hire industry. But the amendments still leave long term hires exposed to the Act (see more information at: www.bartier.com.au/insights/articles) . Hire businesses that fall within the PPSA’s reach still need to rely on their PPSR registered ‘purchase money security interest’ (PMSI) ‘super priority’ status. If PMSI super priority status is not achieved, an earlier registered security interest takes priority. This raises an important question for any hire business. Should you register before you deliver the goods ie: at the outset of the hire? Or is it safe to wait up to two years when the application of the PPSA is looming? The answer to the above questions is in the PPSA and also (if the customer is a company) in section 588FL of the Corporations Act 2001 (Cth). Section 62 of the PPSA confers priority status, where there is a PMSI registration before the ‘grantor obtains possession’. Where the goods are not ‘inventory’ there is a 15 business day grace period. The time a ‘grantor obtains possession’ is clearly a critical moment because it sets the time for registering a security interest as a PMSI. Leave it too late to register and the bank may take the equipment! It can be difficult to fix a late-registered PMSI. A recent decision of the South Australian Supreme Court – Allied Distribution By Oliver Shtein and Alfredo Amado, Bartier Perry Since the introduction of the Personal Property Securities Act 2009 (Cth) (PPSA) ownership is no longer a guarantee of recovery of property, without timely registration. This is particularly the case for equipment hire. Equipment worth many tens of millions of dollars has been lost since the introduction of the new Act. (Eg: www.bartier.com.au/insights/ articles). A recent Court decision reassures hire businesses they no longer have to guess, in advance, which hires might last for more than two years. Here Bartier Perry discusses the decision and implications for the equipment hire industry. Continued on p18... INDUSTRY in FOCUS 16 HIRE AND RENTAL NEWS • MAY 2018 When do you need to register indefinite hire under the PPSA? Finance Pty Ltd v Samwise Holdings Pty Ltd [2017] SASC 163 (Allied Case) adopts a common sense interpretation of section 62 and one consistent with the approach overseas. The Allied Case The South Australian Supreme Court has now held the reference in section 62 to a grantor obtaining possession of goods is a reference to obtaining possession as a grantor rather than in some other capacity. The facts in the case were complex but can be boiled down as follows. In 2014 Samwise registered on the PPSR a general security interest over all Bill’s Motorcycles’ assets. On 12 April, 2016, Bill’s executed a Bailment Agreement for floor plan finance fromAllied. On 14 April, 2016, Allied made a PPSR registration against Bill’s to protect the goods bailed to Bill’s from time to time. On 18 April, 2016 notices were issued the effect of which was to bring 40 motorbikes under the Bailment Agreement with Allied. The critical complication was before Allied registered, Bill’s was already in possession of the motorcycles. That possession was a result of arrangements between Bill’s and its outgoing financier CDF. On 16 June 2016, Bill’s Motorcycles was placed into administration. As PMSI holder, Allied no doubt expected its PMSI priority easily to trump Samwise’s non-PMSI security interest. But Samwise saw the opportunity to argue Allied had not registered before Bill’s obtained possession. Allied won the case. Blue J held section 62 relevantly refers to the grantor obtaining possession as grantor of the purchase money security interest in the property in question. The fact Bill’s had possession of the bikes in some other capacity, before actually becoming a PPSA ‘grantor’ to Allied, was irrelevant. Implications for hires that may cross the two year threshold Some commentators have written registration would be needed at the outset of an indefinite hire. On this view, one could not wait until the two year PPS lease threshold becomes imminent. However there are a number of problems with that very literal interpretation, including the following: • Cases on similar legislation overseas don’t support that view; • Section 62 refers to possession being obtained by the ‘grantor’ which is a term defined in the PPSA in a way that assumes there is already security interest – not just the possibility of one; • The view leaves unanswered how one can register something that is completely outside the PPSA and might never be subject to it because it might never be a PPS lease. Many hire businesses genuinely have no idea when a given customer might end up keeping the goods on hire for more than two years. T