Possession Perfection: The appointment of a receiver and perfection by possession

Articles, Loan + Securities

Justice Markovic of the Federal Court of Australia in Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (in liquidation) (Receivers and Managers appointed) [2017] FCA 866 has provided judicial guidance on what is, and what is not, perfection by possession for the purposes of the Corporations Act 2001 (Cth) (Corporations Act) and the Personal Property Securities Act 2009 (Cth) (PPS Act).

Holding that a resolution of the members of Retroflex, purportedly made pursuant to s 491 of the Corporations Act in February 2016, was not validly passed, her Honour Justice Markovic found that s 588FL of the Corporations Act did not apply and Knauf’s security interest had not vested. She held that in any event, Knauf’s security interest would not have vested because Knauf had not complied with the requirements of s 588FL of the Corporations Act and that the mere appointment of a Receiver to deal with the assets of the company over which he or she is appointed did not amount to actual or apparent possession:

Knauf submitted that the act of appointment is the exercise of a legal right bestowed on it by Retroflex in respect of Retroflex’s assets. It further submitted that this constitutes “possession” within the meaning of s 21(2)(b) of the PPS Act because Knauf is the party with actual and apparent control of the assets.

 But in my opinion that is not sufficient to constitute possession. It is difficult to see how the mere appointment of a receiver could constitute actual or apparent possession of the collateral. The Receiver upon his or her appointment has the authority to deal with the assets to which he or she is appointed to the exclusion of the directors of the company, defined by his or her contractual and / or statutory rights to deal with those assets, but that does not amount to actual or apparent possession.

 Without more, the exclusionary modification to the definition of possession in s 24(1) of the PPS Act prevents the appointment from constituting possession.  It cannot be said that, merely by the appointment of a receiver, a secured party has possession of personal property if at that point the personal property remains in the actual or apparent possession of the grantor or debtor.  That was so in this case.  Upon their appointment the Receivers had the authority to deal with the assets the subject of the Security Deed and, in relation to those assets, could exercise the powers conferred on them by the Security Deed and s 420 of the Corporations Act.  But actual or apparent possession remained with the grantor, Retroflex.”

By way of concluding comments, her Honour took the opportunity to recap on the overarching purpose of the PPS Act and said that the methods for perfecting a security interest under the PPS Act are all directed to the objective of a secured party giving notice of its security interest.

“One of the principle, if not the principle, purposes of the PPS Act is to give notice of a security interest in personal property to third parties. To allow our secured party to avoid the consequences of failing to publicise its security interest before a grantor’s default, at which time a secured party might have a right to seize or repossess the collateral pursuant to the terms of its security agreement, runs contrary to that purpose.”

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