Business Advisory

Rent or hire? It’s PPSA or perish!

B2B Editor6 November 2014

Rent or hire? It’s PPSA or perish!

The Personal Property Securities Act 2009 (PPSA) continues to bite sectors of the business community that have historically had little need for engagement in formal business arrangements. Recently, this firm has been involved in a number of matters relating to rental, hire or bailment
of goods to companies that have become insolvent.

The unfortunate outcome for the providers of the goods in each case was to quickly learn that it made no difference whether or not they ‘owned’ the goods – the PPSA may find that the goods are able to be legally sold by the liquidator without any recourse for the apparent ‘owner’.

You might ask “How is this possible?!” The simple explanation is as follows:

* The PPSA provides that goods subject to hire, rental or bailment (where access is granted subject to a fee, or connected with some other commercial arrangement), create ‘security interests’ that must be documented (i.e. in writing);

* Depending on the type of goods and the duration of the term of hire, rent or bailment, the security interests need to be ‘registered’ on the Personal Property Securities Register (PPSR) –

* Once correctly registered, the security interest is said to be ‘perfected’; and

* Generally, only perfected security interests can be enforced against a liquidator or bankruptcy trustee.

Our experience, where this has not happened, includes:

* A hirer of arcade-style amusement machines did not have a written hire agreement in place and the arrangement was deemed to be a PPS Lease. The undocumented alleged security interest could not be enforced against the Liquidators, who took possession of the machines;

* A hirer of vending machines was deemed to be exposed to a PPS Lease for the placement of his machines in the Company’s premises. The arrangement was not documented or registered on the PPSR. The Liquidator was able to successfully sell the machines at auction;

* A soft drink supplier provided a branded refrigerator as part of a commercial arrangement under which a Company was obliged to buy drinks exclusively from that supplier. The supply of the fridge was deemed a bailment for value and therefore a PPS Lease. No registration on the PPSR was made for the fridge and the Liquidators took possession and sold the fridge at auction.

This area of the law will continue to affect businesses who choose to ignore it. As always, early, trusted advice can help reduce risk and consequential loss.

Tony Lane is a Senior Manager at Vincents Chartered Accountants and provides specialist advice to clients in the areas of insolvency, business risk and financial conflict and dispute resolution.
Level 7, 1 Hobart Place, Canberra City.
T: 6274 3400 F: 6274 3499