PPSA Mick - Sample PPSA Q and A PDF

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Summary

3. Mick runs a horse stud near Goulburn where his business provides breeding services for the surrounding farms. Mick is leasing the rural land under a long-term lease. Mick has $50,000 in his bank account with GBank Ltd (a large finance company operating in town), plus miscellaneous equipment (not ...

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3. Mick runs a horse stud near Goulburn where his business provides breeding services for the surrounding farms. Mick is leasing the rural land under a long-term lease. Mick has $50,000 in his bank account with GBank Ltd (a large finance company operating in town), plus miscellaneous equipment (not fixtures) valued at $150,000. Mick also has an outstanding business loan with GBank worth $300,000 which is covered by a security interest granted by Mick over all of his present and after acquired property. The business loan is part of an ongoing facility used for general business purposes. GBank registers a financing statement to cover security interest in the loan to Mick on 1 August 2015. Mick wants to lease some new equipment valued at a total package of $100,000 from LeaseCo to assist in growing his business. The leasing arrangement includes a maintenance and insurance charge worth $20,000 over the life of the lease and equipment with a market value of $80,000. LeaseCo registers a financing statement to cover its position on 1 September 2015. Unfortunately Mick’s business expansion does not go well and he defaults on all of his obligations (to LeaseCo and GBank). Mick is hopeful that he business can pay back the loans but both LeaseCo and GBank seek to enforce rights against Mick’s assets. Mick sells one of the major pieces of equipment to a related entity MFarm Ltd for $5,000 (which is below market value). Advise LeaseCo and GBank as to their priority rights (if any) under the Personal Property Securities Act 2009 (Cth). Any Exclusions Firstly, under section 8, the PPSA will not apply to real property. Therefore, the Mick’s Land will be excluded from the Act. In advising the parties, the PPSA provides for a priority regime, not a title regime (s 273; Warehouse Sales [2014]), so in order to determine who has priority over what personal property, it is necessary to determine whether the PPSA is applicable to each parties interests. It must be noted that each of the below transactions were consensually entered into (Dura) and relates to only personal property defined in (s 10) that is not excluded by the Act (s 8). Where there is a security interest, it has to attached (s 19), is enforceable against third parties (s 20) and is perfected (s 21), in order to be perfected.

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LeaseCo

LeaseCo will have a security interest over the $100,000 equipment package which it leased out to Mick. The transaction, in substance, secured payment and performance of the lease (s 12(1)). It will resemble a financing lease under section 12(2)(i). Additionally, the SI has attached to the collateral (new equipment)(s 19(1) since LeaseCo has given value (the new equipment) for their SI (s 19(2)(b) (i)). Their SI is enforceable against third parties evinced through the financing statement that cover the collateral (s 20(1)(b)(iii)). Finally, they have perfected their SI as they have registered their financing statement. Assuming that LeaseCo has registered within the 15 day time frame (s 62(3)(b) (i)), they will not have a PMSI as their SI secures that part of the new equipments purchase price and maintenance which is not included (s 14(1)(a)). However, their SI may be a PPS lease which will fall inside a PMSI (s 14(1)(c)).

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G-Bank

G-Bank will have an ALLPAP security interest, which in substance secured the payment and performance of Mick’s obligation to repay the loan (s 12(1)). This SI will resemble a fixed and floating charge (s12(2)(a)-(b)). The SI is attached to the collateral (ALLPAP) since G-Bank has given value in the form of the loan (s 19(2)(b)(i). This SI is enforceable against third parties as it is presumably attached under section 19 (s 20(1)(a) and there is a written security agreement (s 20(1)(b) (iii)) which contained a statement that the SI takes an ALLPAP (s 20(2)(b)(ii)) which was subsequently accepted by Mick (s 20(2)(a)(ii)). G-Bank has successfully perfected their SI as they have registered it on the PPSR (s 21(1)(a)).

Priority Regime Since LeaseCo has a Perfected SI and G-Bank has a perfected SI, the first in time to register will prevail (s 55(4)), therefore G-Bank will have priority over ALLPAP. Hypothetically, if LeaseCo had a PMSI under s 14(1)(c), the outcome would be different, their PMSI will prevail over G-Bank’s perfected SI (s 62). Assuming G-Bank is an ADI (s 25), it will also have top priority over Mick’s

$50,000 in his account and an proceedings transferred into the account even if LeaseCo had a PMSI. In regards to the equipment sold to MFarm, if it is used for personal, domestic or household purpose, they will take free of any SI since the new value was no more than $5,000 (s 47(1)). Therefore, G-Banks SI will not apply to MFarm. If the equipment is not for PDH, it is not for consumer purposes and thus, s 47(1) will not apply; Mfarm will not take free of any SI....