By Andrew Goode, Mellor Olsson Lawyers
A new Commonwealth Act called the Personal Property Securities Act 2009 ("PPSA") came into effect on 30 January 2012.
The PPSA will have an impact on many Australian businesses including those in the rural industry. Businesses potentially affected include those that sell, hire or lease goods.
The PPSA creates a new national register for interests called security interests, which gives them priority over unregistered interests in the event of another party such as a borrower or purchaser becoming insolvent. It replaces or amends many State Acts.
Many contracts, including those with Romalpa clauses, if they are to protect the interests of suppliers, lenders, hirers and others, will need to be registered on the register.
Romalpa clauses are named after an English case. A Romalpa clause is essentially a "retention of title" clause because it says that legal title over goods remains with the supplier until the purchaser pays the purchase price.
There will be a 24 month window from the commencement of the PPSA scheme for registration of some existing security interests, although space does not permit me to explain this in detail.
Similar legislation has been in place in Canada and in New Zealand for some years, and they will be used as a guide as to how the Australian Act will be interpreted.
A 2005 Canadian case provided an example of its impact. In that case there was a dispute between a financier, Farm Credit Canada (FCC) and a farmer, (GK) who leased cattle to his son, as to who had the right to 163 head of cattle.
GK said he was the owner of the 163 head of cattle and had orally leased them to his son, JK, for two calving seasons, which was for a term longer than one year.
GK did not register any security interest pursuant to the PPSA and the issue was whether he was obliged to do so in order to obtain priority over FCC and other creditors.
GK said the cattle were in JK’s possession pursuant to the unwritten lease and JK was responsible for all costs and entitled to keep all the offspring for two calving seasons.
GK continued to buy and sell cattle over 4 years and some of the cattle were financed by FCC.
The Court noted that a lease of goods for the term of more than one year as part of a lessor’s regular business must be registered under the PPSA for a lessor to maintain its priority over other parties (such as FCC).
There was an exception from the registration requirement under the PPSA if the lessor only occasionally leased goods out, and it was not part of their regular business.
The Court found the father, GK, was regularly engaged in the business of leasing cattle. The cow/calf operations were not only substantial, they represented the only cattle business in which GK had any ownership interest. All the cattle he claimed to have owned were at all times subject to a lease agreement with either his son JK or another related company. The Court said that even though there were only three leases, each covering one herd for two calving seasons, it was not the number or frequency of the leases that determined the application of the Act, it was whether the lease involved a lessor who was regularly engaged in leasing the goods.
The Court found FCC had a registered security interest in the cattle and GK had an unwritten lease with his son JK which created a security interest which should have been registered. As GK had failed to register his interest, FCC got the proceeds from the sale of 163 head of cattle.
Other examples of contracts which may need to be registered, depending on their circumstances, include contracts for the sale of goods with Romalpa clauses, mortgages and charges over goods, hire purchase agreements and long term leases of goods.
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Practice Area: Corporate, Commercial & Business