The Relux Case and the PPSR

Litigation: 18 March 2019

On 14 November 2014, The Honourable Justice Sifris handed down the decision in the matter of Carrafa, Gountzos & Lofthouse (as liquidators of Relux Commercial Pty Ltd (in liq)) & Anor v Doka Formwork Pty Ltd [2014] VSC 570 ('The Relux Case'). The case determined whether collateral which was purportedly subject to a registration on the Personal Property Securities Register ('PPSR') had vested in Relux Commercial Pty Ltd (in liq) ('Relux') upon the appointment of administrators.

Factual Background

• Relux rented formwork equipment from Doka Formwork Pty Ltd ('Doka'), which was used in the pouring of concrete slabs and panels.
• The Liquidators submitted that in respect of the equipment leased by Relux from Doka, each lease:
  • Was initiated by an order in writing describing the formwork equipment;
  • Commenced on the date the equipment 'left the Doka warehouse' or Relux took delivery of it;
  • Was for an indefinite term; and
  • Incorporated the Doka General Terms and Conditions which were printed on the back of each invoice.
• On 20 February 2014, Doka registered a security interest in the property held by Relux on the PPSR, describing the collateral as 'Equipment Rental and Sales especially in Formwork'
• The First Plaintiffs were appointed as joint and several administrators of Relux on 7 April 2014 (and were subsequently appointed as liquidators).
• At the two meetings of creditors of Relux, Doka lodged proofs of debt claiming it was an unsecured creditor of Relux.
• The dates for delivery of the formwork equipment with respect to the registration on the PPSR were critical. All the leased equipment was delivered by Doka to Relux prior to 21 January 2014 except for two orders for equipment, which were delivered by Doka on 26 February 2014 and on or about 31 March 2014 ('The Delivery Dates').
• The liquidators applied for declaratory relief from the Supreme Court on whether Relux or Doka had the superior interest in the formwork equipment. 

The application of s588FL to this case

Section 588FL of the Corporations Act 2001 (Cth) 'provides that certain interests covered by the Personal Property and Securities Act 2009 (Cth) ('PPSA') that are not registered on the Personal Property Securities Registered within a certain time, vest in the company that is being wound up or in administration.'

In this case, s588FL(2)(b) determines that the registration time for collateral is after the latest of the following times:

• 6 months before the critical time (s. 588FL(1)(a) - the date of appointment - 7 April);
• The time that is at the end of 20 business days after the security agreement that gave rise to the security interest came into force, or the time that is the critical time, whichever is earlier; );
• (iii) - (iv) were not material to this case.

The leases fell within the definition of security interest as defined by s 12 of the PPSA, which includes 'the interest of a lessor of bailor or goods under a PPS lease'. A PPS lease is defined by examples in s 13 of the PPSA to include a lease or bailment of goods 'for an indefinite term (even if the lease or bailment is determinable by any party within a year of entering into the lease or bailment)' is a PPS lease.

The vesting provision is s 588FL(4):

The PPSA security interest vests in the company at the following time, unless the security interest is unaffected by this section because of section 588FN:

• if the security interest first becomes enforceable against third parties at or before the critical time€”immediately before the event mentioned in paragraph (1)(a)
  
• if the security interest first becomes enforceable against third parties after the critical time - at the time it first becomes so enforceable.

For the purposes of determining the superior interest in the formwork equipment, The Delivery Dates were critical:

• For equipment leased and delivered prior to 21 January 2014, the equipment was not subject to the security interest registered on the PPSR and vested in the liquidator;
• For the equipment leased and delivered on 26 February 2014 and on or about the 31 March 2014, the registration time was 7 April 2014, pursuant to s588FL(2)(b)(ii), which specifies the critical time (appointment date) as the registration time.

Relevant Findings

His Honour Sifris J found that the security interest in respect of all equipment delivered prior to 21 January 2014 vested in Relux on 7 April 2014, and equipment delivered on 26 February 2014 and on or about 31 March 2014 did not vest in Relux as they were subject to Doka's registration on the PPSR.

His Honour noted that s588FL "can lead to seemingly draconian outcomes, particularly where the property is valuable- the property in question was valued at over $1 million. However, His Honour pointed to the Explanatory Memorandum to the PPSA, which noted that the "provisions are needed 'to prevent security interests being granted fraudulently with knowledge of an imminent administration, liquidation or deed of company arrangement'.€

Aitken Notes

• For companies who lease equipment to their clients, such leases should be appropriately drafted to ensure that the interest of the owner and/or lessor of the equipment is preserved in all circumstances;
• Registrations on the PPSR must be appropriately drafted and collateral must be adequately described in respect of each registration; and
• To ensure protection and compliance in a continually changing regulatory environment, Terms and Conditions of Trade must be regularly reviewed.

(Nahum Ayliffe worked on the Relux Case for the plaintiffs.)