The Ticking Time Bomb of Unregistered Interests
October 1, 2013
How the way we think about ownership is rapidly changing
It’s a relatively straight forward scenario: an owner, a bank and a lessee. But in a recent landmark case, the NSW Supreme Court found that none of the above held the strongest claim to disputed machinery. Instead, the Court ruled in favour of a third-party finance company. In a decision that emphasises the massive changes the Personal Property Securities Act (‘the Act’) makes for businesses and individuals alike, the case demonstrates how merely holding title to property no longer means you automatically have a priority claim.
Maiden Civil v QES  NSWSC 852 involved a dispute over three Caterpillar earth moving vehicles that had been purchased by Queensland Excavation Services (‘QES’) and leased to Maiden Civil (‘Maiden’) in 2010. In about March 2012, Maiden sought short-term finance from Fast Financial (‘Fast’), and in the process granted Fast a security over all Maiden’s present and after acquired property – including the Caterpillar machines. Fast proceeded to register its security interest on the Personal Property Securities Register (‘the Register’). QES, on the other hand, had failed to register its ownership interest in the vehicles on the registers available.
When Maiden Civil defaulted on the terms of Fast’s financing agreement a few months later, Fast appointed receivers and took steps to enforce its security interest in the property. In response, QES asserted its legal title to the vehicles.
Ultimately, the case turned on the issue of whether the registration of Fast’s security on the Register entitled Fast to a priority interest in the property over QES’s claim – despite QES’s legal title of the vehicles. The Court ruled that by registering on the Register, Fast had perfected its interest as against other unperfected interests. The fact that QES was the legal owner did not negate its failure to register an otherwise registrable interest.
In simple words, Fast had registered its interest, QES had not, and thus Fast’s claim was found to defeat QES’s title.
The Register is intended to provide a clear and convenient way for all parties to be provided notice of prior interests in the same property. It allows, for example, a finance company to discover pre-existing “retention of title” liens on current stock or a purchaser to determine whether they’re taking clear title.
The flip side of this convenience is that any interests that remain unregistered are not “perfected”. That is, while they might be valid interests, they will be unenforceable against third parties or in an insolvency situation, rendering the creditor just another one of the other unsecured creditors fighting for cents in the dollar.
Under the transitional provisions of the Act, parties have been given a 24 month grace period to register pre-existing security interests created before 30 January 2012. However, this period is rapidly drawing to a close on 31 January 2014.
What It Means For Me
The Court’s ruling in Maiden Civil v QES has demonstrated what we’ve been saying for a long time – the Act is too important to ignore. No company or individual can afford to fail to register an interest in personal property in the possession of another unless it can afford to lose that interest.
If you are involved in any of the following common situations, we strongly recommend that you seek our assistance so you understand how the Act applies to you:
- Selling/supplying goods on credit;
- Lease agreements over plant equipment;
- Retention of title clauses;
- Buying/selling property worth $5,000 or more (including machinery, vehicles, equipment, etc);
- Family Law property divisions.
Please contact Bernie Curtin, Accredited Specialist in Business Law, to discuss how the Register can be used to benefit and protect your business.« Back to news