Do you have an adequate security interest in goods supplied on credit terms? The recent decision of Ferguson J of the Supreme Court of Victoria in Central Cleaning Supplies (Aust) Pty Ltd v Elkerton  VSC 61 provides a timely reminder of how differently retention of title clauses are dealt with under the Personal Property Securities Act 2009 (PPSA) than under the previous system.
Central Cleaning (Central) was unsuccessful in establishing it had a perfected transitional security interest in equipment supplied to a company in liquidation. The retention of title clause being relied on was included in each invoice sent but was not held to be part of the credit application entered into by the parties. The result was that the liquidators were able to claim that the relevant equipment had vested in them on the date of liquidation and the applicant became an unsecured creditor in the estate.
The problem for Central was that they had not registered their security interest on the Personal Property Securities Register (PPSR) and therefore had to rely on the transitional provisions of the PPSA. The transitional provisions only apply to security agreements that were immediately in force before 30 January 2012 and continued to be in force after that date (s 307 PPSA). Although the credit application had been executed before this date, the judge held that the retention of title provision had not been incorporated into it. The retention of title clause was, however, incorporated into each separate contract of supply by way of the invoice. As each of these occurred after 30 January 2012, the security interest was not protected by the transitional provisions but was required to be registered on the PPSR. As this had not been done, the equipment and goods vested in the liquidator.
This case highlights the care which must be taken when drafting credit applications in order to protect the secured creditor in accordance with the provisions of the PPSA.
The case will be reported in the Australian Personal Property Securities Reporter at (2014) APPSR ¶701-013.
This article first appeared in the Australian Corporate Company and Securities Law Tracker and was written by Anne Wardell, Editorial Content Manager.