It’s been over a decade since the Personal Property Securities Act 2009 (PPSA) fundamentally changed the landscape of secured lending and leasing in Australia.
Yet, despite the passage of time, businesses continue to stumble over the strict registration requirements of the Personal Property Securities Register (PPSR).
Critical Insights for Equipment Owners
A recent decision in the New South Wales Supreme Court, In the matter of Dartbrook Commercial Pty Ltd NSWSC 1075, serves as a stark reminder of the high stakes involved in asset protection.
The case involved Mine and Tunnel Constructions Pty Ltd (MTC), which leased two continuous mining machines worth nearly $10 million to Dartbrook Coal. When Dartbrook entered administration, MTC faced the terrifying prospect of losing its equipment due to administrative errors.
The judgment offers critical insights for equipment owners, highlighting four key lessons: losses of equipment are still occurring, courts can be forgiving, compliance is not a DIY task, and PPS registration policies must evolve.
It’s also important to understand that had MTC ignored the PPSA they would have had no ability to appeal to the courts and would have lost everything. They had a ‘crack’, fell short, but the court accepted they had intended to comply.
Losses of Equipment Are Still Occurring
Whilst you won’t read about it in the press, owners of equipment are still losing their gear to insolvent customers.
MTC had leased two high-value machines (MOB065 and MOB017) to Dartbrook. Under the PPSA, a lease of more than two years creates a security interest that must be registered.
However, MTC’s registrations contained critical errors.
They failed to indicate the security interest was a Purchase Money Security Interest (PMSI), which provides super-priority over other creditors. Furthermore, regarding MOB017, MTC failed to register within the strict 15-business-day timeframe required for PMSIs, and worse, registered only after the administrators were appointed.
Because of these errors MOB017 became the property of Dartbrook immediately upon the appointment of administrators.
In plain English: MTC effectively lost its ownership of a $5 million machine because of a paperwork error. While MTC eventually salvaged the situation through court intervention, the risk of total loss was dangerously real.
The Courts Are Forgiving (Where They Can Be)
The judgment demonstrates that courts are willing to exercise their remedial powers to prevent unjust enrichment by unsecured creditors, provided the error was genuine.
MTC applied for relief under the Corporations Act and the PPSA to extend the time for registration and fix the PMSI designation.
Justice Black found that MTC’s failure to register correctly was due to “inadvertence”—specifically, ignorance of the legal consequences of failing to tick the correct boxes.
Consequently, the Court allowed MTC to fix the registrations for the mining machines, restoring their priority and reversing their vesting in Dartbrook.
PPSA Compliance Is Not a DIY Project
Perhaps the most practical takeaway from Dartbrook is the danger of treating PPSA registrations as a clerical administrative task.
Evidence led by MTC’s financial controller revealed that, to save on legal fees, he had performed the registrations himself by “copying what had been done for earlier registrations” by former solicitors.
He admitted he “did not know that the registration of a security interest as a PMSI would secure MTC’s first ranking security interest” and simply did not tick the box because his former solicitor hadn’t done so for previous, different agreements. This “copy and paste” approach was disastrous.
The PPSA is a highly technical piece of legislation where the specific nature of the goods and the contract terms dictate the registration requirements. It requires specialist knowledge, not just data entry.
PPSA Registration Policy Must Adapt to Judicial Decisions
Finally, Dartbrook highlights that PPS registration policies must constantly evolve to reflect judicial interpretation of the Act.
While the Court saved the mining machines, it refused to grant relief regarding the “inventory” (spare parts) supplied with them.
MTC had failed to select the “Inventory” collateral class in its registration. Under then PPSA a PMSI in inventory must be perfected at the time the grantor obtains possession. The Court held it had no power to extend the time for registering a PMSI over inventory.
Consequently, while the $10 million machines were saved, the security interest in the associated spare parts (valued at nearly $230,000) could not be retrospectively fixed.
This distinction is critical.
Businesses must ensure their registration policies distinguish between capital equipment and inventory, as the courts’ power to forgive errors differs significantly between the two.
A Timely Warning
The Dartbrook case is a victory for MTC, but a warning to everyone else.
While the courts may correct inadvertent errors regarding equipment, the PPSA remains an unforgiving regime regarding inventory and strict timelines.
Businesses must view the PPSR not as a “set and forget” administrative task, but as a critical insurance policy that requires professional maintenance.
About the Author: Simon Read
Simon Read is a Chartered Accountant with over 30 years of experience in insolvency and now more than 15 years specialising in the PPSA. He started PPSAdvisory in 2010 and is one of Australia’s leading authorities on the practical application of this complex legislation.
