Receivers seek directions from the Supreme Court in relation to the PPSA and get their money’s worth

Arcabi Pty Ltd (the Company) was in the business of selling (on consignment for investors) and storing rare coins and bank notes.  In 2013 the Company’s secured creditor appointed receivers and managers and the Company entered into liquidation.  There were over 1,600 investors who had engaged the Company to store their coins and bank notes (Mixed Use Goods) or to sell their coins and bank notes on a consignment basis (Consignment Goods).

None of the investors had registered security interests pursuant to the Personal Property Securities Act 2009 (Cth) (PPSA) over their goods.

The receivers applied to the Supreme Court for directions as to whether the fact that the investors had failed to register a security interest in the Mixed Use Goods and Consignment Goods meant that the goods vested in the Company upon the appointment of the liquidator (the effect of which is that the investors would lose their interest in the goods).  The decision in Re Arcabi Pty Ltd (Receivers & Managers Appointed) (in liq) [2014] WASC 310 is discussed below.

Mixed Storage Goods

In relation to the Mixed Storage Goods the critical issue was whether the “bailment” of the goods constituted a PPS Lease pursuant to section 13 of the PPSA (a PPS Lease is a security interest and required to be registered under the PPSA).

The Court held that the bailments were not PPS leases as:

• Even if the investors were in the business of profiting from the exchange of rare coins and notes (which the Court considered unlikely) they were not in the business of profiting from the bailment itself.
• The facts of the case detailed that in a number of instances the exchange of the coins and bank notes was a hobby for the investors and that they did not engage in any business.

Consignment Goods

The Court was required to consider whether the manner in which the Consignment Goods were provided to the Company was a consignment for the purposes of the PPSA.  In order for a consignment to be a security interest for the purposes of the PPSA:

• the consignment must secure payment or performance of an obligation; or
• it must be considered to be a “commercial consignment”.

The Court held that provision of the rare coins and notes on a consignment basis to the Company did not constitute security for any payment or performance of an obligation.

A “commercial consignment” under the PPSA requires that the consignor (the investor) and consignee (the Company) both deal in goods of that kind in the ordinary course of business. The effect of this limitation is that consignments by consumers of their property to a commercial consignee are not caught by the PPSA.

While the Court found that the Company was in the business of selling consigned goods, the Court considered that the evidence did not demonstrate that the owners of the consigned goods dealt with those goods in their ordinary course of business.

Lavan Legal comment

While this decision provides some guidance on the application of the PPSA in relation to goods which are provided on a consignment basis, that is that consumers who do not deal with the consignment of goods in their ordinary course of business will not need to register a security interest, parties who lease, hire or provide goods on consignment on a regular basis should ensure that they understand the effect the PPSA has on those arrangements or that they have registered a security interest to ensure their interest is protected in the event of insolvency.