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PPSA Pre-Registration Question Skeleton 1. Establish whether the item is personal property per s 10 PPSA (negative definition of ‘land’) land includes all estates and interests in land, whether freehold, leasehold or chattel, but does not include fixtures.

2. Is it a deemed security interest? s 12(3) (3) A security interest also includes the following interests, whether or not the transaction concerned, in substance, secures payment or performance of an obligation: (a) the interest of a transferee under a transfer of an account or chattel paper; (b) the interest of a consignor who delivers goods to a consignee under a commercial consignment; (Farm Credit Corp v Valley Beef) (c) the interest of a lessor or bailor of goods under a PPS lease.

a. Is it a PPS Lease? s 13 The lease or bailment of goods for: 2 years An indefinite term Up to 2 years if auto renewal or at option of one parties with total >2 years, or Up to 2 years if lessee/bailee retains possession > 2 years

(2) However, a PPS lease does not include: (a) a lease by a lessor who is not regularly engaged in the business of leasing goods; or (b) a bailment by a bailor who is not regularly engaged in the business of bailing goods; or (c) a lease of consumer property as part of a lease of land where the use of the property is incidental to the use and enjoyment of the land; or (d) a lease or bailment of personal property prescribed by the regulations for the purposes of this definition, regardless of the length of the term of the lease or bailment. Bailments for value only (3) This section only applies to a bailment for which the bailee provides value. If it’s the first time of bailment but they will continue to do it in the future then it counts.

3. If not is it a security interest? s 12 A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property). Note:

For the application of this Act to interests, see section 8.

(2) For example, a security interest includes an interest in personal property provided by any of the following transactions, if the transaction, in substance, secures payment or performance of an obligation: (a) a fixed charge; (b) a floating charge; (c) (d) (e) (f) (g) (h) (i) (j) (k) (l)

a chattel mortgage; a conditional sale agreement (including an agreement to sell subject to retention of title); a hire purchase agreement; a pledge; a trust receipt; a consignment (whether or not a commercial consignment); a lease of goods (whether or not a PPS lease); an assignment; a transfer of title; a flawed asset arrangement.

Must satisfy the following elements: - Consensual relationship – written or oral – Haliburton Broadcasting Group v Van Duyn (2008) 14 PPSAC - Relates to Personal Property

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The transaction gives some proprietary right/interest – not necessarily ownership – note title is not relevant. The SI secures some payment or performance of an obligation – again a substance argument – ‘what does the transaction purport to do’ – JS Brooksbank & Co v EXFTX Ltd.

4. Has the item of property become collateral? Essentially, this step is a summary of all above. It does not need to be explicitly referenced as an issue but should be mentioned. You must have: -

The parties (grantor and secured party) Personal Property Transaction (security agreement) Security Interest

Therefore, this transaction comes under the auspices of the PPSA and the personal property becomes a collateral of the security interest. 5. Is there attachment? s 19 PPSA In effect the process by which the Security Interest is created, which thereby creates the Grantor/Secured party relationship. It can be any right in collateral. If it is sufficient consideration then it fulfils it. If there is no attachment then there is an unenforceable security interest. The SI may attach without the grantor owning the collateral. Attachment required for enforceability (1) A security interest is enforceable against a grantor in respect of particular collateral only if the security interest has attached to the collateral. Attachment rule (2) A security interest attaches to collateral when: (a) the grantor has rights in the collateral, or the power to transfer rights in the collateral to the secured party; and (b) either: (i) value is given for the security interest; or (ii) the grantor does an act by which the security interest arises.

S 19 (2)(A) The Grantor has rights in the collateral: - Not only ownership; any proprietary interest is sufficient, voidable title (iTrade Finance Inc v Bank of Montreal) - Agreement subject to condition precedent; no rights in collateral (Ontario Inc v RSL Canada and EnPlas Inc) - Ability of lessee or bailee to grant a SI not limited to possessory rights; SP can acquire rights in priority to Lessor (Graham v Portacom NZ Ltd) S 19 (2) (B) Value is given for the SI: -

Defn in s 10 – in effect consideration – no need to be sufficient – can be provided at a later date – Agricultural Credit Corp of Saskatchewan v Pettyjohn (1991) 1 PPSAC (2d) 273; or

The Grantor does an act that generates the SI: -

Some form of consideration in lieu of payment – e.g. obtaining rights to the property ( collateral)/signing agreement or taking possession of the property.

Unless the parties agree otherwise ( s19(3))

6. Is it enforceable against 3rd parties? s 20 PPSA

General rule (1) A security interest is enforceable against a third party in respect of particular collateral only if: (a) the security interest is attached to the collateral; and (b) one of the following applies: (i) the secured party possesses the collateral; (ii) the secured party has perfected the security interest by control; (iii) a security agreement that provides for the security interest covers the collateral in accordance with subsection (2).

A SI will only be enforceable against 3rd parties when it is: -

Attached Possession Control Security Agreement

A security agreement must: -

Be in writing Contain a description of the collateral or a statement that a SI is being taken in all present and afteracquired property. Be signed (in writing or electronically) or accepted by the grantor. Written security agreements

(2) A security agreement covers collateral in accordance with this subsection if: (a) the security agreement is evidenced by writing that is: (i) signed by the grantor (see subsection (3)); or (ii) adopted or accepted by the grantor by an act, or omission, that reasonably appears to be done with the intention of adopting or accepting the writing; and (b) the writing evidencing the agreement contains: (i) a description of the particular collateral, subject to subsections (4) and (5); or (ii) a statement that a security interest is taken in all of the grantor’s present and after-acquired property; or (iii) a statement that a security interest is taken in all of the grantor’s present and after-acquired property except specified items or classes of personal property. Methods of signing writing (3) Without limiting subparagraph (2)(a)(i), for the purposes of that subparagraph a grantor is taken to sign writing if, with the intention of identifying the grantor and adopting, or accepting, the writing, the person applies: (a) writing (including a symbol) executed or otherwise adopted by the person; or (b) writing wholly or partly encrypted, or otherwise processed, by the person. Note:

For the meaning of writing, see section 10.

Personal property descriptions—consumer property, equipment and inventory (4) If particular personal property is described using the term “consumer property” or “commercial property” in the writing evidencing a security agreement, subparagraph (2)(b)(i) is satisfied only if the personal property is more particularly described, in addition, by reference to item or class. (5) If particular personal property is described using the term “inventory” in the writing evidencing a security agreement, subparagraph (2)(b)(i) is satisfied only while the personal property is held or leased by the grantor as inventory.

Further description is required if described as ‘consumer property’ or ‘commercial property’ in the SA. Requirement of description. (Re Apollo Fitness Academy Inc) Detail of description is a question of commercial reality – case-by-case – Harris & Mirzai p 126. E.g. - ‘shelving’ sufficient - GE Capital Canada Acquisitions Inc v Dix Performance [1995] 2 WWR 738 - ‘fruit’ sufficient to identify apples as collateral – Duggan & Brown para 4.30 SI in proceeds enforceable against 3rd party even if proceeds not included in SA – S 20(6) - (subject to s32 later) But note: Priority in proceeds will be subject to proper description of the collateral in the Financing Statement s 153

7. Is the security interest perfected? s 21 PPSA Relevant to priority contests, it does not affect the validity of the SI and its enforceability as between Grantor and Secured Party (Bank of Montreal v Innovation Credit Union ). It is how the SP ‘obtains the optimal level of protection offered by the Act’ ( Graham v Portacom NZ Ltd) (Waller v NZ Bloodstock). S21 PPSA - SI can be “perfected”: By force of the Act – ‘temporary perfection’ – s 21(1)(a) – (see later); or If the SI is (1) attached to the collateral + (2) the SI is enforceable against 3 parties + (3) a) There is an effective registration; or b) The secured party has possession of the collateral; or c) Regarding financial property - the SP has ‘control’ of the collateral [s 21(1)(b) & s 21(2)] S21 (3) – you can perfect prior to attaching - i.e. can register before attachment – s21(3) 674921 BC Ltd v Advanced Wing Technologies Corp ( 2006) 9 PPSAC 43 S21(4) One registration can perfect more than one SI (e.g. Romalpa clauses)

Thus 4 ways of perfecting – under the Act, by Possession, by Control and by Registration –most common form of perfection is Registration. 8. How do you register a SI? Effected by way of ‘Financing Statement’ – s 150 Properly registered if: 1. On the approved form, must include the information required by s153, including: - Secured party details - Grantor details - Note: No Grantor details if ‘consumer property required by the Regs to be described by serial no.’ 2. Together with the fee – estimated at $8.00 3. Application not frivolous, offensive or prohibited by the Regs. May only apply to register a SI if believe on reasonable grounds that you will become the SP in relation to the named collateral- s151 – civil penalties apply – indiv. 50 penalty pts, corp. 250 penalty pts Upon registration or change Registrar to give a “Verification Statement” – s155 to be given to the secured party – s156 who in turn must give copy to Grantor but not if ‘commercial property’ and Grantor has waived right to receive – s157 – contravention equals breach of Privacy Act and Grantor may claim damages – s271 PPS Register -

Available 24/7 Level of information dependent on relationship with Grantor – s172 May search on Grantor name, serial number of collateral , Financial Statement identifier – s171 Search fee payable – s190 – set by Minister – est. $4.00

9. When must (consumer property)/ may (commercial property) collateral be described by serial number? -

When it is consumer property and one of the following: Aircraft, watercraft, motor vehicle or certain intangible property (incl. design, patent, trademark or a licence in respect of any of these) PPS Regs. Schedule 1, Part 2, 2.2(1)(a)

consumer property means personal property held by an individual, other than personal property held in the course or furtherance, to any degree, of carrying on an enterprise to which an ABN has been allocated.  When it is a certain type of aircraft/component and described as commercial property PPS Regs. Schedule 1, Part 2, 2.2(1)(b)

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When it is commercial property and one of the following: Watercraft, motor vehicle or certain intangible property (incl. design, patent, trademark or a licence in respect of any of these) PPS Regs. Schedule 1, Part 2, 2.2(1)(c) * Addresses for notice * Description of Collateral: Consumer or Commercial Serial no. must or may be included, if required or allowed by Regs. Class of collateral: See PPS Regs. Schedule 1, Part 2, 2.3(1) – 9 classes (e.g. motor vehicles, all presentand-after-acquired property, other goods, etc.)

10. Defects and Time of Registration Time of Registration – VIP -

S160 – when description of collateral becomes available for search – NB registration may be ineffective if defective – s164 May register prior to attachment – s161 and on transfer of SI – s162 Registration will be effective until –’ end time’ in Financing Statement or amended FS or description of collateral no longer available for search – s163 Defects in registration – s164 & s165 - e.g. if collateral must be described by serial no. and is not – “seriously misleading defect”, or if FS states it is a PMSI if it’s not (see later)

11. Is the grantor is a company? S 588FL Corporations Act 2001 -

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Where the grantor is a company, note section 588FL of the Corporations Act Requires security interests granted by a company to be registered within 20 business days after the security agreement came into force. Failure to register by that time can mean that the security interest may vest in the company on its insolvency (ie the holder of the security interest will lose its interest in the property) - with limited exceptions If a registration is made after this time, the security interest remains subject to this vesting risk for 6 months after registration. See the Pozzebon & Relux cases: Pozzebon (Trustee) v Australian Gaming and Entertainment Ltd, in the matter of Australian Gaming and Entertainment Ltd (in liq) [2014] FCA 1034; Carrafa, Goutzos & Lofthouse (as liquidators of Relux Commercial Pty Ltd (in liq)) & Anor v Doka Formwork Pty Ltd [2014] VSC 570

12. Who has priority? S 55 PPSA The default priority rules regulate the first right of enforcement. Different relationships and positions lead to different priority outcomes. 1. Unperfected vs Unperfected SI – [s55(2)] - First to attach has priority under PPSA - Still have binding obligations (in contract) between Grantor and SP even without perfection. - NB no time limits to register. 2. Perfected vs Unperfected SI –[s55(3)] - Perfected interests trump unperfected interests - Even if perfected interest arises later in time. - Registration – very important. o Graham v Portacom NZ Ltd – PPS lease (deemed SI – s12(3)) o Waller v New Zealand Bloodstock – Lease agreement - Can’t rely on possession by enforcement to get perfection – s21(2)(b) – see also Bank of Nova Scotia v Royal Bank (1987) 8 PPSAC 33. 3. Perfected v Perfected SI

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Dependent on order of ‘priority time’ [s55(4)] Priority Time [s55(5)] Earliest of: o Registration time – s160 o Taking of possession or control o Temporary perfection or by force of the Act Note: Must be continuous [s55(6)] – see s56 later

First in time rule – of perfection - no matter who attaches first - 674921BC Ltd v Advanced Wing Technologies Corp (2006) 9 PPSAC 43 – Newbury J – order of registration of FS determines priority – thus distinguishes here between ‘perfection’ and registration. o Confirmed in the NZ case – Healy Holmberg Trading v LBD Civil Limited (In Liq) [2012] NZCA 451 - Register has primacy. o “Effective” registration NB – e.g. serial numbers, grantor description 4. PMSI v PMSI - Priority between PMSIs - regulated by s63 - A Seller, Lessor or Consignor holding a PMSI perfected under s62 has priority over other perfected PMSIs granted by the same Grantor in the same collateral (e.g. a Lender) o Court may extend 15 day period under s62(3)(b) and 63(c) and (d) - In priority disputes between Seller, Lessor or Consignor, or other competing PMSIs – s55 default rules apply 13. Is there a PMSI in effect? Definition – s14 PPSA : A PMSI is - s14(1): a) SI taken in collateral to secure all or part of purchase price b) SI taken in collateral by provision of value to enable the Grantor to acquire rights in collateral – ‘but for’ test c) The interest of lessor/bailor in PPS Lease (see above) d) The interest of consignor providing goods on consignment under commercial consignment Some exclusions under s14(2): Relevant here: - If collateral at the time of attachment is predominantly for domestic, household or personal use, unless it is described by serial number - s14 (2A) - ‘Predominantly’ is defined under s10 Exception to the general rules of priority – PMSI gets ‘super priority’ over other SIs - see s62 shortly. - Default Priority provisions are potentially unfair generating a windfall gain to a SP, eg where there is a prior SA that includes “existing and after acquired assets” (AllPAP) Note: -

Substance not form – can’t just call it a PMSI to try to obtain super priority – apply substantive ‘but for’ test - Re Clark Equipment of Canada v Bank of Montreal (1984) 4 WWR 519 The value(or funds) provided must go to acquiring the proprietary rights – not mere intention but actual – Pristas v Landaus of Plymouth Inc (1984) 742 F2d (USA) SA may create a general SI and PMSI – OK – But must note PMSI on separate FS

14. Is the Personal Property inventory or non-inventory? S 10 If it is inventory we must register or perfect prior to the delivery of the goods. If is not registered or perfected then it does not gain a PMSI. "inventory" means personal property (whether goods or intangible property) that, in the course or furtherance, to any degree, of an enterprise to which an ABN has been allocated : (a) is held by the person for sale or lease, or has been leased by the person as lessor; or (b) is held by the person to be provided under a contract for services, or has been so provided; or

(c) is held by the person as raw materials or as work in progress; or (d) is held, used or consumed by the person, as materials.

15. Is the PMSI capable of getting ‘super priority’? Two possibilities – Inventory or Non-inventory a) If collateral is “Inventory” (see def s10) or its proceeds - s62(2): If registered before: - Possession/delivery (if goods) or - SI ‘attaches’ to the inventory (if not goods). b) If collateral is not Inventory - s62(3). If registered within 15 business days of: - Possession/delivery (if goods) or - Attachment (if not goods) NB Must indicate SI is a PMSI on registration – s62(2)(c) & s153 16. Is there a Retention of Title Clause? Retention of title is a method by which a person who agrees to sell goods may still remain the owner of the goods (retain title to the goods) until some specified event occurs, usually payment of the purchase price of the goods. Title to goods can be retained until payment of: -

the price of those goods, and other goods previously supplied; or all money owed by the buyer to the seller (all monies clause).

Also referred to as ‘conditional sales agreement’ or a ‘Romalpa clause’ Note: Included as a ‘Conditional sale agreement’ under s12(2)(d) - so gives rise to a SI Changes from the Common Law position - The need for perfection (usually registration) to get priority - The ease of access to proceeds – regulated by PPSA - No more arguments over commingled goods - regulated by PPSA - The options for enforcement – PPSA provisions S 12(2)(d) PPSA re-characterised a sale on RoT terms as a ‘security interest’ as the seller has: - An interest in personal property - Provided for by a transaction that in substance, secures payment of performance of an obligation - Without regard to the form of the transaction or the identity of the person who has title to the property) Implications for RoT clause: 1. Sellers must ensure that they conform with PPSA procedural requirements 2. Buyers may deal with goo...