©MNoonan2011 Commercial Transactions Module 11 Security over Personal Property Summer Session 2010-11

©MNoonan2011

Commercial Transactions

Module 11

Security over Personal Property

Summer Session 2010-11

©MNoonan2011

This presentation and Copyright therein is the property of Maureen Noonan and is prepared for the benefit of students enrolled in the Commercial Transactions course conducted by the Law Extension Committee and is available for their individual study. Any other use or reproduction, including reproduction by those students for sale without consent is prohibited.

©MNoonan2011

Title and security

Under the existing/old system, title is often retained as part of a financing in order to maintain priority. E.g. car leasing arrangements, supplier ROT clauses.

The PPSA adopts a substance rather than form approach. While ownership retains its legal form, in certain cases, registration and other acts are required to retain priority.

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Title and the ability to create security

One must have the right to create a security in order to be successful.

In Sally Anne Horsley the antique furniture had already been gifted to the mother when the son tried to create security over it….so he had no capacity to do so.

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Sally Anne Horsley v. Phillips Fine Art Auctioneers Pty Ltd - SCNSW 31.07.95 No. 3211/92

Concerns gifts, bills of sale, conversion.

Anthony Spies and his brother Carl lived with their parents in The Swifts. Their company Minjar purchased this property in Darling Point from the Catholic Church in 1986. It executed a Mortgage back. In the same year Carl and Anthony as Mortgagor executed an Ordinary Bill of Sale over certain antique furniture and chattels in favour of the Church.

Anthony Spies claimed the 1986 BS was discharged in 1987. Court found it more probably than not that it was paid out (32). The evidence was slim but an inference was raised by the fact that there was a later BS granted by Carl alone (the 1990 BS) to secure unpaid interest from the mortgage over ... “all furniture and furnishings mow and hereafter situated in the premises known as The Swifts ...” ... same furniture as in the 1986 BS.

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Sally Anne Horsley v. Phillips Fine Art Auctioneers Pty Ltd - SCNSW 31.07.95 No. 3211/92 cont (2)

This coincided with the principal mortgage being discharged and a refinancing by Minjar with St George. BS transferred to St George in 1992. St George seized the furniture.

Anthony claims a half interest and sues in conversion. He had to show that he had title to the furniture, that St George converted it and he suffered quantified loss and damage. St George contends that Anthony failed to establish any of these and that prior to the grant of the BS, the furniture had been gifted to their mother in 1987.

Anthony gave evidence of the gift to his mother in 1987 (33). See later paragraphs for discussion of an effective gift … delivery 53-83,84, 85, 86, 87.

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Registration systems

A means of putting others on notice of a situation.

The idea is that others can look after themselves if they have a means of knowing the situation.

Under the existing/old law, this is very difficult because although there are registers, there are a myriad of different ones for different types of property, different types of entities, whether Commonwealth or State laws govern the situation. Some forms of property are not covered at all, so there can be no register of security interests.

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Existing/Old Registration Systems & Priorities

Registration SystemsWe will look briefly at 3 current systems which provide for registration of securities on a Public Register so as to put third parties on notice of obligations-which securities can and should be registered, those which cannot be registered, those which might be required to be registered depending on drafting/effect, formalities required, consequences of registration and non registration.Corporations Act for eligible charges by CompaniesRegistration of Interests in Goods Act (for interests in boats and MVs)Security Interests in Goods Act (charges by non-companies over tangible goods and replacing Bills of Sale Act)-commenced March 2006

PrioritiesWhen there is more than one security holder, it is often necessary to work out who has priority as there may not be enough assets to satisfy everyone.GenerallyCompeting Interests Under the same Registration SystemCompeting Interests under different Registration Systems

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The 2011 main existing/old Registration Systems

1. Corporations-Corporations Act (Cth)2. MVs and Boats-Registration of Interests in Goods Act (NSW)3. Non company other-Security Interests in Goods Act (NSW)4. IP-Patents Act, Trade Marks Act. (Cth)

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Existing Registration Systems

Why are we studying them when a new system is coming in 2011?

Because the underlying legal concepts are important and many do not change.

We have to deal with transactions and issues under the current system for up to another 10 years.

Some aspects of existing systems continue.

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Problems with existing State and Federal registration systems

It is not possible to register interests over some classes of property e.g. many intangibles, retention of title clauses.

Coverage varies from jurisdiction to jurisdiction e.g. boats not covered in REVs in all states.

Dual registration may be necessary e.g. Corp +Revs in Tasmania. Technical compliance may affect validity e.g. agricultural mortgage in

particular form. Interaction of registration systems can deliver complex outcomes e.g. failure

to register under Corp law does not affect validity but technical non compliance with state law will.

Mandatory registration can be difficult to manage e.g. security holder must anticipate whether collateral might be moved to another state

May be a need to register in more than one state May be a need to search in more than one state Registration may be cumbersome..e.g. paper lodgement rather than

electronic Registers may not be available for searching on line May be costly for parties not involved to take proper precautions

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Existing Registration systems

Students may notice that the newer systems e.g. REVS, legislation has moved more to substance over form-in NSW, usually by leaving the meaning of “security” alone and in accord with general law meaning-but creating a “registrable interest”, which might include both securities according to the general law, and other types of structures that might not strictly be called a “security” (e.g. a lease).

The PPSA moves further still towards substance over form by describing many of these structures as a “security interest”…. but note exclusions.

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Charges Required To Be Registered - Corporations Law

s. 262 (1) Subject to this section, the provisions of this Chapter relating to the giving of notice in relation to, the registration of, and the priorities of, charges apply in relation to the following charges (whether legal or equitable) on property of a company and do not apply in relation to any other charges:

(a) A floating charge on the whole or a part of the property, business or undertaking of the company;

(b) A charge on uncalled share capital;

(c) A charge on a call on shares made but not paid;

(d) A charge on a personal chattel, including a personal chattel that is unascertained or is to be acquired in the future, but not including a ship registered in an official register kept under an Australian law relating to title to ships;

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Charges Required To Be Registered - Corporations Law cont.

(e) A charge on goodwill, on a patent or licence under a patent, on a trademark or service mark or a licence to use a trade mark or service mark, on a copyright or a licence under a copyright or on a registered design or a licence to use a registered design;

(f) A charge on a book debt;

(g) A charge on a marketable security, not being;

(i) A charge created in whole or in part by the deposit of a document of title to the marketable security; or

(ii) A mortgage under which the marketable security is registered in the name of the chargee or a person nominated by the chargee;

(h) A lien or charge on a crop, a lien or charge on wool or a stock mortgage;

(j) A charge on a negotiable instrument other than a marketable security.

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s. 262 (2) The provisions of this Chapter mentioned in subsection (1) do not apply in relation to:

(a) a charge, or a lien over property, arising by operation of law;

(b) a pledge of a personal chattel or of a marketable security;(c) a charge created in relation to a negotiable instrument or a document of title to goods, being a charge by way of pledge, deposit, letter of hypothecation or trust receipt;

(d) a transfer of goods in the ordinary course of the practice of any profession or the carrying on of any trade or business; or

(e) a dealing, in the ordinary course of the practice of any profession or the carrying on of any trade or business, in respect of goods outside Australia.

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s. 262(3). The reference in paragraph (I)(d) to a charge on a personal chattel is a reference to a charge on any article capable of complete transfer by delivery, whether at the time of the creation of the charge or at some later time, and includes a reference to a charge on a fixture or a growing crop that is charged separately from the land to which it is affixed or on which it is growing, but does not include a reference to a charge on:

(a) a document evidencing title to land

(b) a chattel interest in land;

(c) a marketable security;

(d) a document evidencing a thing in action; or

(e) stock or produce on a farm or land that by virtue of a covenant or agreement ought not to be removed from the farm or land where the stock or produce is at the time of the creation of the charge.

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Definition Of Charge - S.9 Corporations Law

“Charge”

Means a charge created in any way and includes a mortgage and an agreement to give or execute a charge or mortgage, whether on demand or otherwise.

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The Registration System for MVs & BoatsRegistration of Interests in Goods Act (NSW)

This act provides a system in which “registrable” interests relating to prescribed goods (currently only motor vehicles and boats) can be placed on the Public Register.

The Register is maintained by the Department of Fair Trading and is known as REVS - The Register of Encumbered Vehicles. It can be accessed online and students are encouraged to look at the material provided by the Department of Fair Trading.

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Register Encumbered Vehiclesextract from DFT

Statistically, there is a one in five chance that a vehicle offered for private sale will be carrying a debt for which the new owner could become liable.

The Register of Encumbered Vehicles (REVS) is a service provided by the Office of Fair Trading that can tell you whether or not a vehicle is recorded as encumbered. Encumbered means that there could be money owing on the car or that the registered operator may not own the vehicle outright. REVS can also check if the vehicle is required for an RTA inspection or whether the vehicle has money owing on it, been reported as stolen, been recorded as de-registered, or been recorded as a repairable or non-repairable write-off

Always purchase a REVS search certificate when REVS tells you the vehicle is not encumbered (cost = $10). This will provide confirmation of your inquiry and offer legal protection against the vehicle being repossessed by a creditor due to a previous owners unpaid debt.

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“Security Interest” in relation to goods means an interest or power: -

a) reserved in or over an interest in the goods; orb) created or otherwise arising in or over an interest in

the goods under a Bill of Sale, mortgage, charge, trust or power

by way of security for the payment of a debt or other pecuniary obligation or the performance of any other obligation but does not include any interest or a power reserved or created or otherwise arising under a lease or hire purchase agreement or an agreement excluded by this definition by the regulations.

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“Registrable Interest” in relation to goods means:

a) The interest in the goods of the person to whom is owed the obligation of which the performance is secured by a security interest to which the goods are subject.

b) The interest in the goods of the lessor of the goods.

c) The interest in the goods of the owner under a hire purchase agreement relating to the goods; or

d) Any other prescribed interest in the goods whether arising under the Law of NSW or of a participating State.

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RIGA and REVs

Note that pursuant to ss. 9, 10 a purchaser is not obliged to search REVs if they buy from a motor dealer, but must if they buy privately…in order to buy the car free of registrable interests.

A similar concession has been carried over into the new regime under PPSA.

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Security Interests in Goods Act

An attempt to provide registration for security interests not covered by the Corporations Act-given by individuals and partnerships

Only partial…IP, intangibles not covered

Differs from State to State

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Security Interests in Goods-non companies

The Old Regime

The Security Interests in Goods Act has repealed

The Bills of Sale Act 1898This act distinguished traders bills of sale and ordinary bills of sale. Unregistered traders bills were absolutely void and conferred no security, Unregistered ordinary bills were valid as between grantor and grantee but void as against certain judgement creditors. The aim of registration was to prevent third parties from being misled into believing that the goods to which the bill related were unencumbered.

The Liens on Crops and Wool and Stock Mortgages Act 1898This act enabled the land holder to give a preferable lien over crops, an owner of sheep to grant a preferable lien over wool and an owner of sheep, cattle or horses the ability to grant a stock mortgage. Its aim was to overcome doubts at common law about the efficacy of securities granted over goods that were still in the course of production

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The objects of the Security Interests in Goods Act are:

a) To modify existing law by removing the outdated distinction between traders bills and ordinary bills.

b) Make registration optional rather than mandatory.

c) Remove the need for constantly renewing registration.

d) Registration will generally confer priority over unregistered interests and subsequently registered interests, but a failure to register will not result in invalidity.

e) Registration of agricultural securities will create mortgages over existing and future crops and wool, instead of liens over growing crops.

f) Agricultural mortgages are extended beyond sheep, cattle and horses.

g) Aquaculture mortgages will be permitted.

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The term Security Interest in relation to goods (whether existing or future) is defined to mean interest or power:

a) reserved in or over an interest in the goods; or

b) created or otherwise arising in or over an interest in the goods under a bill of sale, mortgage, charge, trust or power by way of security for the payment of a debt or other pecuniary obligation or the performance of any other obligation but is defined not to include:

- a letting of goods with an option to purchase

- an agreement for the purchase of goods by instalment

- any other hiring agreement

- any other agreement, arrangement, instrument or circumstance prescribed by the regulations.

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The location of the Register for Security Interests in Goods.

This is located with the Registrar General in the same way that the Bills of Sale Register was kept with the Registrar General.

For more information, see the website.

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What “goods”are covered?

goods" means any chattels personal, fixtures or other things capable of complete transfer by delivery (whether immediately or at any future time), but does not include any of the following:

(a) title deeds, negotiable instruments, choses in action or chattel interests in real estate,

(b) shares or interests in the stock, funds or securities of any of the following:

(i) a Government (whether of this State or otherwise),(ii) the Crown or a body representing the Crown (whether in right of this

State or otherwise),(c) shares or interests in the capital or property of a body corporate

(wherever constituted),(d) access licences in respect of water granted under the Water

Management Act 2000,(e) any other thing prescribed by the regulations for the purposes of this

definition.

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"registrable security instrument"

For the purposes of this Act, a security instrument is a "registrable security instrument" if:

(a) the instrument states the name and address of each grantor and the name of the holder of the security interest concerned, and(b) the instrument includes a description of the goods to which the security interest relates to the extent to which the goods are ascertainable at the time of the execution of the instrument, and(c) the instrument has been duly executed by each grantor, and(d) in the case of an agricultural goods mortgage--the instrument otherwise complies with the requirements of Part 2.

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Agriculture

(1) In this Act:"agricultural goods" means any of the following: (a) crops, (b) fish, (c) stock, (d) wool."agricultural goods mortgage" means any of the following: (a) an aquaculture fish mortgage, (b) a crop mortgage,(c) a stock mortgage (including a wool mortgage)."aquaculture" has the same meaning as in section 142 of the

Fisheries Management Act 1994."crop" includes the following: (a) wheat, maize, canola, sorghum, barley, oats, lucerne, grass

(whether for hay or grain), cotton, tobacco, rice, sugar-cane and any other kind of agricultural produce,

(b) oranges, grapes (whether as fruit or for wine or spirit) and any other kind of fruit or horticultural produce.

"crop mortgage" means a mortgage over crops that is granted as provided by section 7

"stock" includes any sheep, goats, cattle, horses, swine, poultry, alpacas, llamas, ostriches or other animals (except fish)."

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Crop Mortgages

7. Creation of crop mortgages (1) A person may grant a mortgage as provided by this section (a "crop

mortgage") over any crops that grow or are grown on land by way of security for payment of a debt or other pecuniary obligation in circumstances where the person:

(a) owns the land, or(b) has exclusive possession of the land and a right to harvest crops that

grow or are grown on the land, or(c) holds a lease over the land granted under the Western Lands Act

1901 (whether or not the lease confers exclusive possession of the land) and has a right to harvest crops that grow or are grown on the land, or

(d) is entitled under a sharefarming agreement with the owner or lessee of the land to crops (or a share of the crops) that grow or are grown on the land and has obtained the written consent of the owner or lessee to grant the mortgage.

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Crop Mortgages cont (2).

(2) A crop mortgage may extend to any or all of the following: (a) crops that are growing on the land concerned during the period of

the mortgage,(b) crops to be sown or planted on the land concerned by the

mortgagor during the period of the mortgage,(c) crops that grow on the land concerned in the ordinary course of

nature during the period of the mortgage.(3) A crop mortgage must: (a) be in the prescribed form, and(b) be duly executed by the mortgagor, and(c) describe or otherwise identify the crops to which the mortgage is to

apply, and(d) describe or otherwise identify the land on which the crops

concerned are growing or will grow, and(e) specify a period for its duration in accordance with subsection (5),

and(f) be registered within the period of 45 days after its execution.

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Crop Mortgage

I, [name of mortgagor] of [address of mortgagor], (the "Mortgagor") grant a mortgage as provided by the Security Interests in Goods Act 2005 in respect of the crops described in the Schedule in favour of [name of mortgagee] of [address of mortgagee] (the "Mortgagee").

This mortgage is granted as security for the payment by the Mortgagor of the following:

1 [state debt or other pecuniary obligations for which mortgage granted]2 *The provisions set out in the memorandum of covenants, registered in the

General Register of Deeds as number [specify number of memorandum], are included as part of this mortgage subject to the following:(a) *[specify any alterations to or omissions from provisions] (b) This mortgage has effect for the period specified in the Schedule commencing from the date of its registration.

Dated: [state date of execution] Signed by or on behalf of the Mortgagor: [Mortgagor's or attorney's signature] in the presence of: [witness's name] [witness's address] [witness's signature]

1 Crop to which mortgage relates [describe crops to which mortgage relates or will relate]2 Land to which mortgage relates [describe land on which the crops are growing or are to grow]3 Duration of the mortgage [specify period for duration of the mortgage, including

any renewal rights]

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Stock mortgage/*Wool mortgage

I, [name of mortgagor] of [address of mortgagor], (the "Mortgagor") grant a mortgage as provided by the Security Interests in Goods Act 2005 in respect of the *stock/*wool/*stock and wool described in the Schedule in favour of [name of mortgagee] of [address of mortgagee] (the "Mortgagee").

This mortgage is granted as security for the payment by the Mortgagor of the following:1 [state debt or other pecuniary obligations for which mortgage granted]2 *The provisions set out in the memorandum of covenants, registered in the General Register of Deeds as number [specify number of memorandum], are included as part of this mortgage subject to the following:(a) *[specify any alterations to or omissions from provisions](b) This mortgage has effect for the period specified in the Schedule commencing from the date of its registration.*This mortgage *extends/*does not extend to [state any limitations on or extensions on the provisions of section 12 (5) or (6) of the Security Interests in Goods Act 2005].


1 *Stock and wool/*stock/*wool to which mortgage relates [describe stock and/or wool to which mortgage relates or will relate]

2 Land on which stock concerned to be kept [describe land on which stock concerned are being kept or are to be kept]

3 Duration of the mortgage [specify duration of mortgage, including renewal rights]

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Aquaculture fish mortgage

I, [name of mortgagor] of [address of mortgagor], (the "Mortgagor") grant a mortgage as provided by the Security Interests in Goods Act 2005 in respect of the fish described in the Schedule in favour of [name of mortgagee] of [address of mortgagee] (the "Mortgagee").This mortgage is granted as security for the payment by the Mortgagor of the following:1 [state debt or other pecuniary obligations for which mortgage granted]2 *The provisions set out in the memorandum of covenants, registered in the General Register of Deeds as number [specify number of memorandum], are included as part of this mortgage subject to the following:(a) *[specify any alterations to or omissions from provisions](b) This mortgage has effect for the period specified in the Schedule commencing from the date of its registration.


1 Fish to which mortgage relates [describe fish to which mortgage relates or will relate]

2 Land or water source to which mortgage relates [describe land or water source on or in which fish are being cultivated or are to be cultivated]

3 Duration of the mortgage [specify period for duration of the mortgage, including any renewal rights]

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Priorities

1. Generally

2. Within systems

3. Between systems and non-registerable securities.

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Priorities

1. Equities being equal, first in time of creation prevail.

2. Equities being equal, preference given to legal over equitable.

Subject to special rules, etc., for: Purchasers without notice. Fraud, estoppel and gross negligence. Dearle v. Hall. Statutory registration rules. Bankruptcy and Liquidation Statutes. Provisions re “tacking”. Marshalling of assets.

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Factors affecting priorities

Whether in or out of bankruptcy or liquidation Type of grantor of security. If Co, subject to

Corporations Act. Otherwise, State law. Form of security-possessory or non-possessory

and in case latter, whether grant or title reservation.

Type of property-tangible, intangible-statutory scheme applicable?

Where secured property is situated-law may differ from State to State.

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Companies-priorities

Owners, title holders not creditors in current system

The usual order for creditors in case of insolvency--

1.Fixed charges, mortgages

2. Preferential creditors (including employees)

3. Floating charges

4. Unsecured creditors

5. Subordinated (unsecured) creditors

6. Equity claimants-preference shareholders

7. Equity claimants-ordinary shareholders

8. Equity claimants-deferred shareholders

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FIXED and FLOATING charges.What is the difference?

When a charge is taken, no transfer of ownership. A particular asset is set aside so if chargor fails to pay, chargee is entitled to receive and apply proceeds of sale against the liability.

Fixed charge given over a specific piece or pieces of property.

A floating charge “floats” over the assets until it crystallises and becomes fixed in accordance with terms of charge.

A fundamental difference is right of the chargor to deal with the asset during the charge. Under a floating charge, chargor can deal with it in ordinary course of business until crystallisation. Where a fixed charge given, no right to deal with it without consent chargee.

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Companies-priorities

It can be seen from previous list that creditors will make a considerable effort to be a secured creditor in order to get to top of list.

However, there is some pressure to leave a company debtor free to use secured property in the ordinary course of business-- to generate cash flow to service the debt.

A problem can sometimes arise with characterisation of charges.-e.g. book debts-is a charge over book debts fixed or floating?

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Assignment of book debts-factoring

Distinguish an assignment from a charge

A Legal assignment must comply with s. 12 of the Conveyancing Act. Assignee is then the “owner” of the debt and questions of priority do not arise.

An equitable assignment for value need not satisfy notice to debtor requirement, but may lose priority to an assignment where notice has been given. It can be by way of security, but may lose priority to a registered charge.

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Legal AssignmentMust be absolute assignment..outright transfer, not by way of security or

conditional.

Must be in writing under hand of assignor

Must be express notice in writing to the debtor, stating the fat of the assignment, the name of the assignee, date of assignment and amount of the debt.

Advantages

No consideration is required, Assignee can sue in their own name

Debtor can safely pay assignee, Legal interest obtained for value and without notice of earlier equitable interests will have priority ahead of them.

Disadvantages

Identity assignee known, stamp duty payable, must be whole debt (not part) and not by way of security.

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Equitable assignments of book debts

Clear expression of intention to assign required

Subject matter must be identified with certainty

Where consideration, effective from time it is paid

Assignor continues to be “owner”, so assignee is trustee.

Advantages

No notice required (may be defeated by person who takes later interest but gives notice first if they have no notice of earlier interest-can protect by taking charge over legal interest retained and register with ASIC), may be conditional, by way of security, part only, writing is not required if supported by consideration, and if done correctly stamp duty not payable

Disadvantages

Assignor must be a party to any enforcement action, assignee takes interest subject to equities arising before notice (including rights of set off or counterclaim by debtor) and can lose priority to another assignee who gives notice before them.

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The trouble with book debts

Effectiveness of fixed charge over book debts upheld in 1979 decision of Siebe Gorman & Co Ltd. v. Barclays Bank Ltd (1979) 2 Lloyd’s Rep 142 and later in 1986 Supreme Court Ireland Re Keenan Bros Ltd (1986) BCLC 242

PC in Agnew disagreed with Siebe decision and found charge in Agnew only a floating charge because debtor could use proceeds in ordinary course of business.

The Hof L in National Westminster Bank plc v. Spectrum Plus Limited (2005) UKHL confirmed lower decision of High Court of England-if a charge permits the chargor to deal with any proceeds of realisation of book debts in ordinary course of business until some further step is taken, charge is floating, irrespective of how parties classified it.

Although these decisions are persuasive and not binding in Australia, if applied, for a charge over book debts to be fixed, chargee must have control over book debts and proceeds.

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Creation of fixed charges over book debts-the practicalities.

Successful strategies include:

A prohibition in the charge against the company realising debts itself whether by assignment or collection without consent of chargeholder.

More realistically commercially, the chargeholder appoint the company its agent to collect the debts for its account and on its behalf.

Pay into blocked account so money not available as a source of cashflow. However, blocked account must operate in substance as well as in name to be effective-chargor must be denied right of access for withdrawals, any payment out of the account must be at chargee’s discretion and to be safe a separate decision by the bank on a case by case basis whether or not to release monies.

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Sample problem-Orbis Communications

Orbis Communications Limited (Orbis) provides internet services to businesses. Nibelheim Industrial Bank (Nibelheim) holds a floating charge over all business assets. Principal assets comprise telecommunications and computer equipment, accounts receivable and cash in an NAB account. The floating charge contains a restrictive covenant prohibiting Orbis from creating subsequent security interests ranking equally, or ahead, without consent Nibelheim. An automatic crystallisation clause in the event of any breach. Menard Finance Limited has agreed to advance funds to Orbis and take a fixed charge over receivables and floating charge over bank account-requires Orbis to deal with receivables in accordance with instructions of Menard. In absence instructions, Orbis must collect them in ordinary course business and pay them into their bank account but is otherwise prohibited from dealing with them. Orbis may deal freely with proceeds in the ordinary course of business prior to the crystallisation of the Menard floating charge over the bank account. Orbis is experiencing difficulties. Menard has requested your advice on legal status of its security interest and its priority vis a vis Nibelheim.

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Securities over IP

Is registration of a security interest granted by a company over IP under Corporations Act sufficient to create a valid security interest?

Compare and contrast:Copyright

Trademarks

Patents

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Security interest in a Patent

If a company is granting a charge over a Patent, the Corporations Act requires it to be registered on the Australian Register of Company Charges and the Patents Act allows it to be registered.

Should it be registered on both?Yes, because in many cases the Patents Act provisions will determine

priority.e.g. if there is a priority dispute between an assignment of a patent and a security interest over the patent, then the Patents Act would apply because the priority sections of the Corporations Act only apply to disputes between security interests.

If Patents Act silent (e.g. in relation to priority disputes not involving a patentee or between 2 interests not registered anywhere), the priority rules of the Corporations Act will apply.

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Notice

Is registration on one system (incorrectly) notice to a chargor who registers on another (the correct register)?

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A Patent example

X grants a charge over a Patent to A, and the charge is registered under the Corporations Act but not in the Patent Office in accordance with the Patents Act. Later, X assigns the Patent to B who searches the Patent Register, but not the Corporations Register.

Would A’s security interest take priority over B?Probably not. Under s. 189 of the Patents Act, X is the patentee and can deal

with the patent as absolute owner and give good title to B provided that B is ”a purchaser in good faith for value and without notice of any fraud on the part of the patentee”. B had no actual notice because he did not search the Corporations Register. The Parliament intended that the Patents Register be the one and only place to look to determine ownership of and whether security interests exist in Patents, so registration on the Corporations Register would not be constructive notice.

Prudent course for a person taking security or purchasing a Patent, is of course, to search both.

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Copyright

In Australia, the Copyright Act applies. No formalities are required to obtain copyright and there is no copyright register. This creates certain problems in being sure who is the owner and capable of transferring title or granting a licence.

An assignment has no effect unless in writing and signed by the assignor s. 196 CA.

If X transfers a copyright to A and then grants a security interest in the same copyright to B, B gets nothing because the prior legal interest of A prevails over the subsequent legal or equitable interest to B.

If X grants a license to A and then a security interest to B, B takes subject to A’s license.

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Copyright and notice

If an Australian work is registered in the US Copyright Office, are the details on the US Register (which notes assignments and security interests) notice to Australian lenders?

e.g.An Australian Co,D, creates a computer game.It registeres this work in the US Copyright Register and obtains a loan from a US bank, securityed against all copyright owned by D. USBank regsiters its security interest in the US Copyright Register but not in the Australian Register of Company Charges. Later, D grans a similar security interest to OZbank, who searches the Australian Register of Company Charges, finds nothing and registers its security interest. Is OXbanks security interest subject to USBanks security interest?

Possible answers: OZbank taken to have constructive notice of the security interest recorded in the US and so USBank’s charge has priority. Alternatively OZbank taken to have constructive notice only of security inteests recorded in Australia. Or, because copyright is territorial, USBank has priority over US copyright and OZbank has priority over Australian copyright. Result uncertain.

A prudent Australian lender would search the US register and the local company register. If they were clear, they would require D to register any significant works with the US Copyright Office and then record the security agreement with the US Copyright Office against each work, require future works to have the same treatment.

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Trademarks

See s. 22…The registered owner of a TM may, subject only to the register, deal with the TM as absolute owner.

One should register/search in both Company Register and TM Register because registration in the former may provide no protection against a person with a prior right to the TM as recorded in the TM register….unless it can act as notice, or fraud exists.

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Australian Central Credit Union V. Commonwealth Bank Of Australia No 566 of 1989 (1991) SASC 2724 cont (2)

Who is entitled to proceeds of sale of vehicle? Valid Bill of Sale and effective to transfer title? No lack of formality…miss L agent for KPR P/L….Bill of Sale purported to transfer legal title subject to right to possession and equity redemption…consumer mortgage (Consumer Credit Act). Nothing to prevent passing of title. Is Bill of Sale a charge within Companies Code? Was it a charge on a personal chattel..i.e. article capable of complete transfer by delivery? Yes, neither Motor Vehicles Act (scheme for registration ownership) nor other statute deprive a MV capacity of being transferred by delivery.Therefore a charge and should have been registered under Co Code. A registered charge has priority over unregistered charge created before it, unless chargee of unregistered charge proves chargee of registered charge had notice of unregistered charge at time registered charge created. Was registration under Goods Securities Act notice?Would reasonable person, acting prudently in own interests have searched the register? No said majority. Yes, said dissenting Judge.

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The New Regime

STUDENTS PLEASE NOTE

Any and all examination questions for Summer 2010-11 will proceed on the assumption that the new regime is in force and not the existing/old regime.

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The new regime -coming October 2011

For the Summer 2011 Semester, students should concentrate on the PPSA and:

1. Floorplan arrangements (including treatment of ROT clauses) and company charges.

2. Differences between the new regime when compared with the current/old system.

Any problem examination question in Summer 2010-11 would involve 1. Any short question would involve 2.

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Personal Property Securities Act 2009

See www.ag.gov.au/pps for more informationCreates a single national register incorporating current

Corporations Charges Register, REVs, IP, State non corporation registers.

Legislation ceding powers to Commonwealth and consequential changes going through.

Will be searchable online.Notification register only. No copies of documents.Some conceptual changes and new terminologySets out priority rules.

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PPSA-company charges

Floating charges remain, but distinction between floating and fixed re priorities disappears with registration.

Conceptually a fixed charge becomes a security interest attached to an asset that is a non circulating asset.

Floating charge becomes a security interest attached to a circulating asset.

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Stages in taking security

Attachment-requirements for creation as between parties

Perfection-requirements for efficacy against third parties

Priority-situation and rules for determining outcome where there are competing interests

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Perfection and Priority

Registration systems

Registration of securities on a public access register is seen as a way of alerting others to the extent to which an entity has financed activities. A new lender or business partner/supplier can therefore protect themselves by searching the Register.

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The floorplan arrangement

Car dealers (and many other retailers) cannot afford to own all stock.A Manufacturer sells cars to a Financier who, in turn, provides the cars to a Dealer Limited pursuant to a Bailment agreement entitling the Dealer to display them and sell them to third party purchasers (be they other dealers or end customers). The floor plan bailment documentation contains a retention of title (ROT) clause in favour of the financier until the Dealer pays them for that vehicle.In other words, the Financier owns the cars until the Dealer sells them to someone else and pays the Financier.Often, a Bank or other financier who provides general banking and finance facilities, has a fixed and floating charge “over all present and after acquired property” of a Dealer to secure those lines of credit. These charges may be entered into, before or after floorplan arrangements.Customers who come into the dealership and agree to purchase a car often need finance. That customer usually pays a deposit and either borrows the rest from a financier (giving security over the car) or, the dealer sells the car to the financier who then leases it to the customer. In the first situation, the customer owns the car. In the second situation, title to the car is with the financier.

©MNoonan2011

The floorplan arrangement

How does this sample arrangement operate under the existing/old law?

How does this arrangement operate under the new regime?

What must each party do to protect it’s interests? What is the outcome for each person if the Dealer sells

the car to a purchaser, but does not account for the proceeds to the Financier?

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Floor plan arrangements

Manufacturer makes car

Manufacturer sells to Financier (F) and title passes to F. F provides the car to Dealer (A) for on sale to third parties (either consumers or other dealers) on title retention basis (ROT clause)…

Currently this is not a charge (so if A is a corporation, not registrable on ASIC Corporations Register) and not registrable on REVs…it is a bailment by F to A

But under new PPS register, to obtain a perfected security interest, F must register. To obtain PMSI super priority, F must register PMSI interest. The agreement must be in writing signed by the grantor to be effective against third parties.

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PPSA s. 12 meaning of Security Interest

(1) A security interest means an interest in relation to 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.

i.e. function/substance over form

Section 12(2) makes the functional approach clear

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PPSA s. 12(2)

(2) For example, a security interest includes an interest in relation to 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) a chattel mortgage;(d) a conditional sale agreement (including an agreement to sell subject to retention of title);(e) a hire purchase agreement;(f) a pledge;(g) a trust receipt;(h) a consignment (whether or not a commercial consignment);(i) a lease of goods (whether or not a PPS lease);(j) an assignment;(k) a transfer of title;(l) a flawed asset arrangement.

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PPSA s. 12(3),(3A) and (4)

(3) A security interest also includes the following interests in relation to personal

property, 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;(c) the interest of a lessor or bailor of goods under a PPS lease….which includes a floorplan arrangement.

(3A) A person who owes payment or performance of an obligation to another person may take a security interest in the other person’s right to require the payment or the performance of the obligation.

(4) Without limiting subsection (3A):(a) an account debtor, in relation to an account or chattel paper, may take a security interest in the account or chattel paper; and(b) an ADI may take a security interest in an ADI account that is kept with the ADI.

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PPSA s.12(5) and (6)

(5) A security interest does not include:(a) a licence; or(b) an interest of a kind prescribed by the regulations for the purposes of this section.

(6) A security interest is not created only by an agreement or undertaking to do either of the following:(a) to postpone or subordinate a person’s right to payment or performance of all or any part of a debtor’s obligation to another person’s right to payment or performance of all or any part of another of the debtor’s obligations;(b) to postpone or subordinate all or any part of a secured party’s rights under a security agreement to all or any part of another secured party’s rights under another security agreement with the same grantor.

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Note the position of liens

PPSA does not cover…..See section 8 of PPSA for full list, which includes:(b) (other than s. 73)A lien, charge or any other interest in personal

property, that is created, arises or is provided for under a law of the Commonwealth (other than this Act), a State or a Territory unless the person who owns the property in which the interest is granted agrees to the interest.

(c) (other than s. 73) a lien, charge, or any other interest in personal property, that is created, arises or is provided for by operation of the general law.

(d) (other than s. 80) Any right of set-off or right of combination of accounts…

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Deemed security interests

Note that in some cases, certain transactions are deemed to be security interests even if they do not secure payment or the performance of obligations.

e.g. lease for more than one year transfer of receivables.

How does this differ from current legal situation?

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Definitions

See Dictionary in section 10.

Often the full definition is given there. Where there is a special section providing a definition, there is reference to that section. E.g. “attaches” has the meaning given by section 19.

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Parties to transactions

A person who provides credit (who may be called financier, consignor, lessor, bailor, transferor) known as a “secured party”.

Person who has the interest in the property is “grantor”

Person who owes money or performance of obligation will be “debtor”.

“grantor” and “debtor” will be same person, other than in complex financing arrangements.

Property subject to a security interest is referred to as “collateral”

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Rights between the parties

While agreements set out the rights between parties and while the PPSA may not change the nature of those agreements and the legal rights created by them, the rules about validity, priority, insolvency and enforcement in the PPSA can enhance, negate or affect the value of those rights.

e.g. the nemo dat rule, general law rules of priority

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PPS Lease

Is our floorplan arrangement a PPS lease?See s.13 for definition:A PPS lease means a lease or bailment of goods;(a) For a term of more than one year; or(b) For an indefinite term(c) For a term of up to one year that is automatically renewable….(d) For a term of up to one year,, in a case in which the lessee or bailee, with the

consent of the lessor or bailor, retains uninterrupted..possession…..for a period of more than one year

(e) For goods that may or must be described by serial number in accordance with the regulations…..(which includes MVs)..for 90 days or more or less than that but automatically renewable for terms which might be 90 days or more.

But only if part of business…etc in (2)Floorplan bailments are therefore PPS leases. Clear from policy perspective that

legislature wants them to be treated as PPS leases. They may also be commercial consignments, but perhaps only special types would be. See definition of commercial consignments.

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Purchase Money Security Interest

PPS lease also a PMSI

See definition PMSI s. 14 PPSA.(1) A PMSI means…(a) A security interest taken in collateral, to the extent that it secures all

or part of its purchase price;(b) A security interest taken in collateral by a person who gives value for

the purpose of enabling the grantor to acquire rights in the collateral, to the extent that the value is applied to acquire those rights;

(c) The interest of a lessor or bailor of goods under a PPS lease;(d) The interest of a consignor who delivers goods to a consignee under

a commercial consignment.

See rest of definition for exceptions and clarifications.

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Super priority

Remember PMSI and super priority?

What is super priority?

See s. 62 PPSA

Why does a perfected PMSI get this?

Usually inventory/circulating assets and background financier generally content that this finance is provided in addition to general financing by another lender.

Old ROT situation, so enables a similar priority, done differently.

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The stages for PMSI

Attachment-written agreement or possession by secured party.

Perfection- registration.

Priority-Super priority over other security interests accorded by act if correctly attached and perfected.

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Attachment

A security interest will be effective according to its terms, and may cover after acquired property. S. 18

It will only be effective against the grantor if it has attached to collateral.s.19-when grantor has rights in collateral, can transfer it to secured party, value given or security interest otherwise arises….a grantor has rights in goods leased or bailed to grantor under a PPS lease, consigned to grantor or…when grantor obtains possession.

In case of floorplan, grantor has at least a possessory interest and supplier has given value by virtue of supply.

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PerfectionMain rule See s. 21. Idea is to make position visible to those who might otherwise deal with grantor.Perfection provides protection against third parties and against loss in an insolvency of grantor.A security interest in particular collateral is perfected if:(a) The security interest is temporarily perfected, or otherwise perfected, by force of this Act; or(b) All of the following apply:

(i) The security interest is attached(ii) The security interest is enforceable against a third party(iii) Subsection (2) applies….registration, possession…in certain cases

control.

Perfection by possession is not practical for floorplan arrangements, so registration is the main way PPS lease PMSIs will be perfected.

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Enforceability against third parties.

s.20 PPSA for general rule(1) A security interest is enforceable against a third party…

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; See s. 24 for what possession means…actual or apparent…

(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 (2)..(in writing signed by grantor or adopted by act and it contains description and statement that a security interest is taken)

©MNoonan2011

Enforceability against third parties

So, Financier in Floor plan example

Under section 20, for attached security interest of Financier to be enforceable against third parties, financier must have possession, control

or security agreement in writing.

As it is not going to have possession or control of the cars, written security agreement in accordance with s. 20(2) essential to protect rights of financier.

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Third party rights

Third parties can take free of a security interest in a number of situationss.43- if they buy or lease for value they take free of unperfected security

interests. Therefore critical that financier perfects interest.S.44…buyer or lessee can take free of security interest if search by serial

number only would not disclose registration that perfected security interest. Regulations propose that goods described by reference to serial number in PPS registration process…aircraft, MVs and watercraft….Must be so described if “consumer property”.

s.45 Two special rules for MVss.46 sales or leases in ordinary course of business…protects customers of

dealers…does not apply where buyer/lessee holds goods as inventorys. 47 Special rule for low value domestic and household property…value not

more than $5,000…does not apply to property which must be described by serial number or if actual knowledge.

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Third party rights s.44 example

Person A owns a number of collectable motor vehicles in the course of running a business of hiring out vehicles for special events. A secures a loan from Bank B against the vehicles. B perfects its security interest by registering against all of A’s motor vehicles but does not register each MV individually by serial number. Person C buys one of the MVs from A. A search of the PPS Register by serial number would not disclose that B has a security interest. C would take interest in MV free of B’s security interest.

Example from Explanatory MemorandumRule does not apply if buyer or lessee holds as inventory or

buyer or less was a party to security.

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Special rules for MVs

s.45 Buyer or lessee can take free of security interest if they

give new value, obtain their interest from the grantor and at a time between

the day before the sale or lease and the time the sale or lease took place a search by serial number would not disclose the interest.

Or if the seller/lessor is a person prescribed by

regulations….draft regulations provide that dealers covered by state or territory MV dealer licensing schemes are to be prescribed persons.

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s. 45 Example

In our floorplan example, Financier purchased MVs from Manufacturer and permits Dealer to retain them at its dealership for sale. Financier registers its security interest in each vehicle. Customer wants to buy a car with finance provided by Bank. Neither Customer nor bank needs search PPS register as Dealer is a licensed Motor Dealer and they acquire the car free of Financier’s security interest. Note rule does not apply if buyer or lessee holds vehicle as inventory or has actual or constructive knowledge. See also regulations.

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s. 45 Notice example

D is motor vehicle dealer. Bank A has perfected a security interest in all vehicles at showroom by registering each vehicle against serial number. Security agreement obliges D to sell vehicles for amount determined by formula with minimum price of $x. T is an associate of D, though not a MV Dealer, and is aware D is obliged to sell vehicles for at least $x. D sells MV to T for amount significantly less than $x. T would not acquire the MV free of A’s security interest.

Example from Explanatory Memorandum.

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s.47 Example

P buys a chainsaw at a garage sale for $2,000 with the intention to use it in her hobby workshop. P is not aware of any security interest in the chainsaw. The market value is less than $5,000. P takes the chainsaw free of any security interest.

Example from Explanatory Memorandum

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Priorities

Very complex rules in PPSA.

For Summer 2010-2011, students should focus on floorplan example and parties in that example and priorities between them.

See ss. 54-64

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Priority

Where a debtor defaults, there is a competition between various parties interested in obtaining items belonging to debtor to satisfy obligations.

E.g. Liquidator, banks who provide overall facilities and services, finance companies who have financed inventory, machinery etc by leasing, floorplan arrangements, factors who have financed working capital by taking interests in receivables, customers, suppliers.

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Priority between interests

s.55

Unless otherwise provided:

(a) Perfected interests have priority over unperfected interests; and

(b) priority between perfected interests amongst themselves and unperfected interests amongst themselves, is determined on a first-in-time basis

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Priority between unperfected security interests

s.55 (2)

Priority between unperfected security interests in the same collateral is to be determined by the order of attachment of the security interests

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Priority between perfected and unperfected security interests

s.55(3)

A perfected security interest in collateral has priority over an unperfected security interest in the same collateral

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Priority for perfection

(4) Priority between 2 or more security interests in collateral that are currently perfected is to be determined by the order in which the priority time for each security interest occurs.

(5) For the purposes of (4) the priority time..is, subject to (6), the earliest of(a) Registration time(b) The time security interest is perfected by possession or control(c) The time the security interest is temporarily perfected, or otherwise perfected, by force of this Act.

(6) A time is a priority time…only if…the security interest remains continuously perfected….see s.56 for continuous perfection

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Priority and PMSIs

s.62PMSI has priority over a perfected security interest granted

by same grantor in same collateral but which is not a PMSI ifThe PMSI is in inventory or its proceeds…the PMSI is perfected by registration at the time…for inventory that is goods….the grantor obtains possession…or for any other kind of inventory..the PMSI attaches to the inventory and…the registration that perfects the PMSI states in accordance with item 7 of the table in s. 153, that the interest is a PMSI

For other than inventory see. S. 62(3)For priority between competing PMSIs.

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Priority and control

Note that security interests perfected by control have the highest priority

e.g. a security interest held by an ADI in an ADI account with the ADI has priority over any other security interest in the ADI account. An ADI has control over an ADI account held with the ADI (s.25). Only the ADI with which an ADI account is held my perfect a security interest in the ADI account by control (s.21). A security interest perfected by control has priority over any other security interest in the same collateral (s.57).

NOTE: Security over ADI’s is not examinable in summer semester 2010-2011. This example is to illustrate “control”

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Priority and control

Under a floorplan arrangement, are the cars “inventory”? See definition of inventory and s.341(1B)

Does a secured party have “control” of the cars? See sections 340 and 341

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Inventory

s.10 DEFINITION

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…….

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Inventory and control

s.341(1B) For the purposes of subsection 340(5) and this section;(a) Inventory has its ordinary meaning; and(b) (b) the definition of inventory in s 10 does not apply.Control of inventory(1) For the purposes of sub s 340(2) a secured party has control of

inventory if:(a) the secured party and the grantor have agreed in writing that the grantor:

(i) will specifically appropriate the inventory to the security interest; and

(ii) will not remove any specifically appropriated inventory without previously obtaining the specific and express authority of the secured party to do so; and(b) the grantor’s usual practice is to comply with the agreement

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Priorities-insolvency

s.267 upon insolvency an unperfected security interest can vest in the grantor. This is a radical change. Previously under floor plan arrangements, financiers were entitled to retrieve bailed goods because they were the owner. Short term PPS leases of up to a year are excluded if they are goods that may or must be described by serial number, which includes MVs.

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Company charges

s. 339 (4)…reference to a fixed charge over property is taken to be reference to a security interest that has attached to personal property that is not a circulating asset

s. 339(5)…reference to a floating charge ….taken to be a reference to a security interest that has attached to a circulating asset

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Company charges

s.340 Meaning of circulating asset

For the purposes of this Act if a grantor grants a security interest in personal property to a secured party, the personal property is a circulating asset if

(a) The personal property is covered by (5) unless (2) or (3) applies or

(b) In any other case-the secured party has given the grantor express or implied authority for any transfer of the personal property to be made, in the ordinary course of the grantor’s business free of the security interest.

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Company charges

The exceptions in (2) and (3)

If an effective registration discloses that secured party has control of the personal property and it does. For meaning of control see 341.

If personal property is goods and security interest is perfected by possession

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Circulating asset

s.340(5)….current assets

An account that arises from granting a right or providing services in the ordinary course of a business…

An account that is the proceeds of inventory

An ADI account (other than a term deposit)

Currency

Inventory (note ordinary meaning and not s. 10 definition)

A negotiable instrument

For meaning of control and inventory see. S. 341

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Floating charges

Provided an equitable right to enforce against sufficiently identified /described collateral as and when it came into existence on crystallisation.

In the meantime other interests could take priority

Under new system, priority between two perfected interests is date of registration/perfection; otherwise first in time.

Difficult conceptually to go “back”. See discussion regarding book debts.

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Trade Finance and SecuritiesThe import scenario

Note mix of security interestsBankers LienPledgeUnpaid seller’s lienUnpaid seller’s right of stoppage in transitCarriers lien for unpaid freightBankers right of set offFixed and floating charges over importers assetsNOTE: Students in Summer 2010/2011 will not be

examined on this scenario.

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Student Question

Please go over Q2 Part A of the exam in September 2010

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Exam September 2010Q2 Part A

IRL Limited (IRL) manufactures and sells caravans (the caravans) in NSW. It has a Distributorship agreement with Greypower Pty Ltd (Greypower), a retailer of the caravans in NSW. Greypower has a floorplan arrangement (consisting of a Floorplan Agreement, Bailment Agreement and Fixed and Floating Charge) with MMI Limited (MMI).When IRL sold caravans to Greypower, it would send an invoice to Greypower identifying the goods sold and amounts payable, on the front. On the reverse side were printed terms and conditions, including one retaining title “until all payments originating from the business relationship with the dealer are received” and another clause authorising sale “in the ordinary course of business”. Greypower would then fax MMI the front and back pages of the invoice and MMI would pay IRL direct. The Manager of Greypower kept track of the various transactions and sent spreadsheets to IRL and MMI listing particulars of the caravans, purchases and payments.Greypower has gone into voluntary Administration. The Administrator has discovered that the spreadsheets sent to IRL and MMI do not match. IRL has claimed 54 caravans that have not been paid for, pursuant to the retention of title clause in the Distributorship Agreement with Greypower. MMI claims ownership pursuant to the Floorplan arrangement.Advise MMI on its position.

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This issues in this question concerned title (transfer s.22SOGA), ROT clauses, nemo dat and exceptions, and security over personal property. Students were expected to apply the existing law, (rather than PPSA)

THE SITUATION UNDER THE EXISTING LAW

The first task was to analyse the facts

Determine which 54 caravans were at issue…identification numbers…were they still with Greypower or had they been sold to end customers already? Assume first that they were still with Greypower and then analyse assuming they had all been sold to customers.Under the floorplan arrangement between MMI and Greypower, MMI may have had title to the caravans (paid IRL directly, so more likely), or just security (in which case their payment to IRL was on behalf of Greypower, who would have had title and given security over the caravans to MMI). Thorough analysis would have involved both alternatives, but adopting only one of the two in an answer was sufficient.

Clarify what Q you are being asked.

You are asked to advise MMI as to whether it can claim the 54 caravans….or the competing claims of IRL or Administrator (for Greypower) would prevail.

September 2010 QA2 cont

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Sept 2010, QA2 cont

Under the exising law, MMI would be in the strongest position if it had title to the caravans. The facts suggest…”when IRL sold caravans to Greypower…”) title went from IRL to Greypower to MMI. Title passes when the parties intend that it should pass. S. 22 SOGA. Despite ROT clause, intention likely to be that title passed when individual caravan paid for and/or sold to end customer. ….because of the way that floorplans work….practical, authority to sell. Alternatively ROT clause a nonsense because it said one thing while they did another. See BHP case. ROT clause likely a “charge” because it attempted to retain title until all payments for all cars received. Void against the administrator unless registered on ASIC charges register.MMI would attempt to prove title to individual caravans by matching invoices with payments. Note that MMI received copies of invoices and made payments direct, so it should be able to do this from its own records and compare identification numbers to the physical caravans. Even if ROT clause effective against Greypower and MMI (unlikely) any end customer would acquire good title free of previous interests to a caravan due to an exception to the nemo dat rule (e.g. s.28(1) SOGA, s.5 Factors Act)..As against the Administrator, if MMI could prove title had passed to it, then no longer property of Greypower, so MMI would succeed. If, as part of the floorplan arrangement, title to the caravans passed to Greypower (rather than MMI), and MMI exercised the fixed and floating charge over them (security rather than title), unless this were registered on the ASIC register, it would be void as against the Administrator and the Administrator would be entitled to the caravans and not MMI.

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Sept 2010 QA2 cont.THE SITUATION UNDER THE PPSA

Under the PPSA, the situation would be different. Title would no longer be the main determinant of rights between the parties. As the PPSA is a national law, it would cover the field and be applied. The IRL ROT clause would be a “security interest”. The Floorplan/Bailment Agreements would also be a “security interest”….PPS Lease and PMSI. The PPSA would regulate the matter and determine priorities, not title.In a risk management sense, IRL would be better off selling individual caravans, insisting on payment immediately, maintaining its own records and keeping out of the security field. If, for marketing reasons, it provided caravans to Greypower to display, without payment, this should be under a separate arrangement. Any ROT clause it used would be a “security interest”. However, if it were not a PMSI, it would lose out to a properly perfected MMI PMSI anyway.MMI would have to have a written floorplan agreement, attach and perfect it with registration to be entitled to priority over other creditors of Greypower under PPSA. End customers would still be protected against it they met the requirements of s. 43,44,45or 46 of the PPSA.In the summer semester 2010/2011, no problem Q on this topic would have facts as complicated as exist in this Q.

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Past Exam Questions-

P purchased a second hand car from UsedCarsRus Pty Ltd. 3 weeks after the purchase the car was repossessed by a finance company because the previous owner still owed $4,000. Does P have a remedy?In what circumstances will a solicitor have a general lien over a client’s papers?Is it possible to give security over Intellectual Property? What are the dangers for lenders who accept such security?

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Past Exam Questions

Why might it be difficult to enforce a chattel mortgage over a continuous miner (i.e. a very large mining machine used in underground coal mining)?

What is a statutory lien? Ensure that you provide an example.

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Past Exam Questions-short

QB3 March 2004

(a) What is a bankers lien?

(k) What is a linked credit provider?

QB3 September 2007

(e) Describe three ways in which liens may arise by operation of law in a typical manufacturing operation.

(g) A large bank has asked you to recommend how you would you structure an enforceable fixed charge over book debts for their clients. Please do so.

Documents

©MNoonan2011 Commercial Transactions Module 11 Security over Personal Property Summer Session 2010-11