Authored by Julian Grant
While you may think the Personal Property Securities Act 2009 (Cth) (PPSA) only affects those within the financial sector, the truth is that it affects almost all industries—including the newsagency industry. This article highlights some of the most common ways the PPSA affects those within that industry and provides some practical tips to help you protect your interests.
What is the PPSA?
The PPSA came into effect on 30 January 2012 and replaced over 70 Acts dealing with the use of personal property as security for finance related transactions. Under the PPSA, all security interests are registered under one central database known as the Personal Property Securities Register (PPSR). The PPSR is essentially a noticeboard upon which all parties who have a security interest in personal property can pin up a notice to the world that they have an interest or are owed money. While registration on the PPSR does not affect the underlying enforceability of the agreement, it prevents other parties from taking priority in the event of insolvency.
One aspect of the PPSA that may catch some people out is the definition of a security interest because the focus has now shifted from who owns or has title to the goods, to the substance of the arrangement between the parties. Consequently, various arrangements that were not previously considered security interests are now captured under the PPSA. To avoid falling foul of this definition, whenever you enter into an arrangement where you will no longer be holding goods that you believe you have an interest in, you should consider whether the PPSA applies.
Another significant change under the PPSA is that you are now required to ‘perfect’ your security interest (generally by registering the security interest on the PPSR) in order to protect your place in the queue. Failing to do so within the specified timeframes may leave you waiting at the end of the queue with the unsecured creditors.
When the PPSA came into effect, it included transitional provisions that essentially allowed those with existing security interests two years in which to perfect their interests without losing their priority. That period has now ended and any security interests that have not been perfected may have lost their priority. If you think you may have unperfected security interests, you should seek further advice on how to best protect your interests.
Who owns the fitout?
One practical situation in which the PPSA is likely to affect those in the retail industry (including newsagency businesses) is when a landlord contributes to, or finances, the fitout of leased premises. In such circumstances, the landlord may have a security interest in the fitout if it contains any items that are not considered fixtures, including equipment, fittings or other moveable property. Determining what is and is not a fixture will be a key factor in determining whether the PPSA applies in this situation, because land and fixtures are expressly excluded from its operation.
What is a fixture?
In general, anything determined to be a fixture is considered part of the land and, therefore, owned by the landowner. However, it is not always easy to identify exactly what items are fixtures because no clear definition has been developed by the courts. In addition, there appears to be some discrepancy between the definition of a fixture in the PPSA and in the case law, which complicates this issue further.
The determining factor in most cases is the purpose for which the item was brought onto the land and the degree to which it has been annexed to the land or building. As a general rule, if the item was brought onto the land for the purpose of improving the use or enjoyment of the land, the item is likely to be a fixture. Whereas if the item was brought onto the land for the purpose of improving the use and enjoyment of the item itself, it is unlikely to be a fixture.
In either case, if you are a landlord who has contributed to the fitout of the premises, it is important that you consider whether the PPSA applies and seek to register and clearly identify any interests that you may have. Failing to do so may result in ownership of the fitout passing to the controller of the tenant’s assets in the event of insolvency.
While the fitout of some premises may not be worth much at the end of the lease, a decision involving the Cancer Care Institute of Australia Pty Ltd illustrates that it can be valuable and definitely worth protecting in some circumstances.
In that case, administrators were appointed and a dispute arose over whether two cancer treatment linear accelerators were fixtures. The accelerators were valued at almost $9 million. If the items were held to be fixtures, the tenant and the equipment financier (who had a registered security interest in the equipment) would suffer significant loss because the equipment would be considered part of the land and, therefore, owned by the landlord. Ultimately, the court found in favour of the tenant and the financier on the basis that the objective facts indicated that the parties had not intended that the equipment would be treated as a fixture. The court pointed to the financier’s registered security interest in the equipment as evidence of this intention.
Also consider: abandoned goods and cash deposits
If the lease allows the landlord to take possession or dispose of any goods abandoned by the tenant at the termination of the lease, the landlord may be able to register a security interest in those goods. In addition, a search of the PPSR at the termination of the lease may help the landlord identify any parties who have an interest in the abandoned goods.
Regarding the deposit, the tenant is able to register a security interest in any cash deposit held by the landlord. However, if the lease requires the provision of a bank guarantee, neither party will have a security interest in that guarantee.
Goods supplied on consignment or retention of title terms
Another practical situation in which the PPSA may apply to those within the newsagency industry regards goods supplied on consignment or retention of title (ROT) terms. Such arrangements are now considered security interests under the PPSA. Specifically, they are deemed to be purchase money security interests (PMSIs), which gives them ‘super priority’ over other security interests—but only if they are registered on the PPSR prior to delivery of the goods.
Goods supplied on consignment terms are supplied on the basis that the goods will only be paid for once they have been on-sold to a third-party purchaser. Some common examples are artworks and sculptures sold at a gallery.
Goods sold on ROT terms are similar because ownership of the goods remains with the supplier until they are paid for in full. However, in a ROT arrangement, the goods are paid for by the person who takes possession of them, rather than being on-sold to a third-party purchaser. A common example is stock delivered on extended payment terms.
In either of these situations, it is crucial that the supplier of the goods registers their security interest on the PPSR prior to delivery of the goods. Failing to do so will cause the secured party to lose its ‘super priority’ and potentially result in its ranking behind other secured parties in the event of insolvency.
The case involving Super Butcher reinforces the importance of registering your security interests in goods supplied on ROT terms. In that case, Super Butchers owed approximately $1.6 million to two meat suppliers who had supplied stock to Super Butchers on ROT terms. Both suppliers had failed to register their security interests on the PPSR. As a consequence, the unsold stock vested in the administrators upon their appointment and the suppliers lost their priority. This resulted in significant losses for each of the suppliers, who were then ranked with the unsecured creditors.
Goods supplied on a ‘sale or return’ basis
In the newsagency industry, it is common for publishers to provide stock on a ‘sale or return’ basis. In this situation, if a publisher supplies the stock on ROT terms, this may be a deemed PMSI for the reasons outlined above. If that is the case, the publisher should register their interest on the PPSR prior to delivery of the goods in order to ensure their ‘super priority’. In addition, the newsagency may have a registrable security interest in any stock recalled by the publisher for the period between the date the stock is returned and the date the newsagency receives credit or reimbursement for it. It should be possible for each party to make a ‘one off’ registration to cover all future transactions subject to the terms of the specific agreements.
Ultimately, the commercial feasibility of any such registrations will depend on the terms of the specific agreements between the publishers and the newsagencies—and from a commercial perspective, whether the registrations are warranted. However, it is always important to consider whether the PPSA applies and seek further advice where necessary.
What to do if a registration is made against you
If a registration is made against you, you should ensure that the registration is accurate and that your contact details are correct. While registration does not directly affect the enforceability of the underlying agreement, inaccurate registrations may make it difficult to attain finance and could lead to further complications in the event of insolvency.
Key points to remember:
- If you enter into an arrangement whereby you will no longer be physically holding goods in which you believe you have an interest, consider whether the PPSA applies.
- If you are a landlord who has contributed to the fitout of leased premises, register your security interest in any items of value that are not considered fixtures.
- If you deliver goods on consignment or ROT terms, register your security interest in the goods prior to delivery.
- Check that the details of any registration on the PPSR are accurate and ensure that your contact details are up to date.
The PPSA affects almost all industries; therefore it is important to understand how it may impact you and your business. Seek further advice where needed.
Our Banking & Finance, Commercial Property and Retail teams have legal experience across the retail sector. For more information, please contact Jacqueline Browning, Special Counsel and Head of Banking & Finance, Cornwall Stodart on + 61 3 9608 2186 or email@example.com.
This article was first published in the December 2014/January 2015 edition of Inside Retail.