Court finds the PPSA does not apply to other peoples assets held by insolvent company

There has been very little case law so far on the PPSA. A recent Western Australian case has considered the applicability of the PPSA to other people’s goods left in the charge of an insolvent company.

In re Arcabi Pty Ltd (in liq) [2014] WASC 310 receivers sought directions from the court in relation to notes and coins found in the possession of a rare coin dealer.

Bailed goods

The court found that items left with Arcabi without further instruction constituted a bailment. The arrangement did not “secure payment or performance of an obligation” in accordance with Section 12(1) of the Personal Property Securities Act 2009 (Cth) (PPSA).

The court noted that in certain circumstances, a bailment can be caught by Section 13 PPSA as a PPS lease. However not in this case because the owners of the bailed goods were not in the business of bailing goods. They were either coin dealers or hobbyists.

The bailed coins and notes were therefore not subject to any security interest capable of perfection pursuant to the PPSA.

Consigned goods

Under section 12(2)(h) PPSA a ‘consignment’ will be a security interest if it, in substance, secures payment or performance of an obligation”.

Where the goods the subject of the consignment are not security for a debt, the consignment is not a security interest for the purposes of the PPSA. In this case the dealer only had to pay apparent owners when an item was sold to a third party, with title in the goods passing to the purchaser. If items were not sold there was no obligation on the dealer to pay an apparent owner and title remained with the apparent owner. An apparent owner could retake possession of its items at any time. Accordingly 12(2)(h) did not apply.

On the basis of the foregoing the court found that the consigned goods were not the subject of a PPSA security interest for the purposes of Section 12(2)(h).

Takeaway message concerning PPSA

If the arrangement concerning personal property does not in substance secure payment or performance of an obligation it is not likely to attract the operation of the PPSA.

Receivers’ indemnity and lien

The court next considered the scope of the receivers indemnity and lien.

The court found that attempting to locate owners was part of continuing to run the dealers business.

The court noted that “even if there is ultimately no benefit to unsecured creditors a lien is not denied”.

Accordingly the court made orders that an indemnity secured by an equitable lien against the assets of the dealer was allowed irrespective of costs having been incurred in relation to non-assets of the dealer.

Unclaimed Goods

After an extensive effort to find the owners of unclaimed notes and coins and applying Section 424 of the Corporations Act the court ordered that unclaimed goods could be sold and their proceeds applied towards the costs to the Receivers in connection with identifying, attempting to locate the owner of and realising the unclaimed goods. The proceeds were also to be applied to any claim to the unclaimed goods which occurred within 6 months of the sale, otherwise any remaining proceeds would be distributed in the course of the receivership.

The court found that subject to steps being taken to ensure the interests of any owner were protected there was “no reason why the general power conferred by s 424 should not be utilised” to “provide an out of court receiver with appropriate protection in their dealings with goods in their custody”. 

The court noted that “numerous attempts were made to contact the [apparent owners]. What more, it might be asked could the Receivers have reasonably been expected to do to find the owners of the Unclaimed Goods. The answer is nothing. Considerable time and cost has been expended in attempting to locate the owners of the Unclaimed Goods. Enough is enough. The Receivers were entitled to regard the Goods as abandoned and take the steps they proposed.”

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