Judicial Guidance about "Perfection by Possession" under Australia's Personal Property Securities Act
The Federal Court of Australia has provided judicial guidance about what constitutes taking possession by seizure under the Personal Property Securities Act 2009 (Cth) ("PPSA"). Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (In Liquidation) (Receivers and Managers Appointed) [2017] FCA 866 indicates that a receiver taking possession of personal property in accordance with a valid security agreement will not perfect a security interest by way of possession.
Background
Knauf Plasterboard Pty Ltd ("Knauf") supplied plasterboard products to Plasterboard West Pty Ltd, trading as Retroflex ("Retroflex"). In June 2014, Retroflex granted Knauf a security interest over all of its personal property. Knauf did not register its security interest on the Personal Property Securities Register until 3 February 2016.
After Retroflex defaulted, Knauf appointed receivers. The receivers took steps to take control of Retroflex, including attending the premises, changing the locks and gathering information about the company. Shortly after, Retroflex's members purported to appoint a liquidator. The liquidator changed the locks and asked the receiver's employee to leave the premises.
Judicial Guidance on "Perfection by Possession"
The Court held that the liquidator was not validly appointed and that Knauf's unperfected security interest did not vest in Retroflex.
In reaching this decision, the Court considered whether Knauf had validly perfected its security interest by possession. Section 21(2)(b) of the PPSA provides that a security interest will be perfected if, amongst other things, the secured party has possession of the collateral, provided the possession is not as the result of seizure or repossession.
The Court held that seizure is the forcible taking of possession and, therefore, the receivers had taken possession of Retroflex's property by way of seizure. The Court noted that seizure and repossession are unacceptable forms of taking possession in order to perfect a security interest because they do not give notice of security interests in collateral to third parties.
This case highlights the need for a party to properly perfect its security interest or risk having that interest vest in its counterparty if the counterparty enters administration or liquidation.
Lawyer Contacts
For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com/contactus/.
Lucas Wilk
Perth
+61.8.6214.5737
lwilk@jonesday.com
Roger Dobson
Sydney
+61.2.8272.0534
rdobson@jonesday.com
Katie Higgins
Sydney
+61.2.8272.0531
khiggins@jonesday.com
Evan Sylwestrzak
Perth
+61.8.6214.5738
esylwestrzak@jonesday.com
Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our "Contact Us" form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.
