PMSI super-priority confirmed by South Australian Supreme Court

Posted on September 21, 2018

Last Friday, the Full Court of the Supreme Court of South Australia delivered its judgment in Samwise Holdings Pty Ltd v Allied Distribution Finance Pty Ltd [2018] SASCFC 95. The Full Court upheld Justice Blue's decision that Allied Distribution’s PMSI had priority over an earlier registered AllPAP security interest with respect to 40 motorcycles.

The Facts

1. Samwise Pty Ltd (trading as Bill’s Motorcycles) (Bill’s Motorcycles) sold motorcycles bailed and financed by Commercial Distribution Finance Pty Ltd (CDF).
2. In 2014, Bill’s Motorcycles granted an AllPAP security interest in favour of the appellant, Samwise Holdings Pty Ltd (Samwise Holdings), a related entity to secure a guarantee given by Bill’s Motorcycles to Samwise Holdings.
3. On 12 April 2016, Bill’s Motorcycles and Allied Distribution Finance Pty Ltd (Allied Distribution) entered into a bailment agreement for Allied Distribution to provide floorplan finance to Bill’s Motorcycles.
4. On 14 April 2016, Allied Distribution registered its PMSI.
5. On 15 April 2015, Allied Distribution acquired ownership of the 40 motorcycles previously owned by CDF but in the possession of Bill’s Motorcycles.
6. On 18 April 2016, Allied Distribution issued Bill’s Motorcycles with bailed goods’ notices in respect of those 40 motorcycles.
7. In June 2016, Bill’s Motorcycles was placed into voluntary administration, and subsequently into liquidation. In liquidation, Allied Distribution exercised its rights under its PMSI to take possession of the motorcycles.
8. Samwise Holdings opposed Allied Distribution’s demand for possession of the motorcycles.

The First Instance Decision

Samwise Holdings filed proceedings in the Supreme Court of South Australia on the basis that Allied Distribution had not perfected its security interest, and so did not have priority over Samwise Holdings’ AllPAP security interest and therefore not entitled to possession of the motorcycles.

Further, Samwise Holdings alleged that, because Bill’s Motorcycles had possession of the motorcycles subject to the PMSI since 2012, Allied Distribution, who registered its PMSI on 14 April 2016, had not perfected the registration as required by section 62(2)(b)(i) of the Personal Property Securities Act 2009 (Cth)(Act).

That section of the Act requires that a PMSI, like that registered by Allied Distribution (i.e. over inventory), will only be afforded a super priority if the registration for that interest occurred before the grantor (being Bill’s Motorcycles) obtains possession of the inventory (being the motorcycles) as grantor of the PMSI.

The key issue to be resolved by the Court was whether Samwise Holdings’ general security interest trumped Allied Distributions’ PMSI.

Justice Blue confirmed that Allied Distribution’s PMSI had a super priority over Samwise Holdings’ AllPAP security interest because Allied Distribution’s registration was made prior to Samwise Holdings obtaining possession as grantor.

The Appeal

Samwise Holdings appealed the decision to the Full Court of the Supreme Court of South Australia. The sole question to be determined by the Full Court on appeal was whether Justice Blue had properly interpreted and applied section 62(2)(b)(i) of the Act.

The Outcome

The Full Court unanimously affirmed Justice Blue’s interpretation of section 62(2)(b)(i) of the Act, namely that:

• A PMSI will retain its super priority status irrespective of whether the grantor was in possession of the goods in a capacity outside of their role as grantor of the PMSI. Here, Bill’s Motorcycles became grantor on 18 April 2016, when the bailed goods notices were issued, because, according to the definition of grantor under the Act, Bill’s Motorcycles was not a grantor until the bailment was effective.
• The Full Court rejected the argument advanced by Samwise Holdings that a PMSI’s super priority is confined only to situations where the PMSI holder provides new value to the grantor’s asset pool.

The Full Court, by this judgment, affirmed that assets the subject of a registered security interest (such as an AllPAP security interest) does not necessarily mean that the party holding that AllPAP security interest is entitled to all of the grantor’s present and after acquired property.

This decision poses an important reminder for creditors: what is the certainty of their security interest in a grantor’s assets if they have properly registered an AIIPAP security interest on the PPSR but that registration pre-dates a PMSI registration?

If the outcome of this decision raises any queries about the priority of your registrations, please contact James Neate on 08 8236 7621 or Alice Carter on 08 8236 7626.

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