The Supreme Court of South Australia recently handed down its decision in the case of Samwise Holdings Pty Ltd v Allied Distribution Finance Pty Ltd & Ors  SASCFC 95. The case concerns refinancing of credit secured by a purchase money security interest (PMSI) under the Personal Property Securities Act 2009 (Cth) (hereinafter the ‘Act’) and has important implications for the law of personal property securities.
Bill’s Motorcycles operated as a motorcycle dealer and were provided with floorplan finance by Commercial Distribution Finance Pty Ltd (CDF). The motorcycles were owned by CDF and held by Bill’s Motorcycles on bailment. Bill’s Motorcycles were also provided with finance by Samwise Holdings Pty Ltd (Samwise) and granted a security interest in all present and after-acquired property (ALLPAAP) registered on the Personal Property Securities Register (PPSR) in favour of Samwise. CDF’s credit was subsequently refinanced with Allied Distribution Finance Pty Ltd (Allied Distribution) who took ownership of the motorcycles, entered into a new bailment arrangement with Bill’s Motorcycles and registered their security interest on the PPSR as a PMSI.
Bill’s Motorcycles went into administration and Allied Distribution commenced court proceedings against Samwise seeking a declaration that the PMSI held by Allied Distribution had priority over the ALLPAAP held by Samwise.
The Act provides that a PMSI over inventory receives ‘super-priority’ ahead of any other PPSR security interest (whether registered earlier or later) if it is perfected by registration at the time the grantor obtains possession of the inventory.
The central question in the case was whether possession must be simple possession or possession ‘as grantor’ of the PMSI. If simple possession was required, Allied Distribution would have lost their priority because Bill’s Motorcycles had possession of the inventory (motorcycles) since first bailed from CDF and well before Allied Distribution registered its security. If possession as grantor of the PMSI was necessary, Allied Distribution would have prevailed as their security was registered at the time Bill’s Motorcycles became a bailee of Allied Distribution and obtained possession on such basis.
The court held that the Act envisaged possession as grantor of the PMSI and that Allied Distribution received priority over Samwise.
Refinancing of inventory credit is normally by means of an incoming financier acquiring ownership of the inventory, entering into fresh credit and security agreements with the debtor and taking new security. It is less common for the incoming financier to take assignment of the existing arrangements from the outgoing financier because they want to have the benefit of their own terms and conditions. In case of assignment however, the Act expressly preserves the priority of an existing PMSI. Uncertainty existed around priority of a new PMSI in a refinancing which involves fresh facilities.
Samwise Holdings Pty Ltd v Allied Distribution Finance Pty Ltd & Ors confirms that a new PMSI receives super-priority in these circumstances. The court ascribed a meaning to a statutory provision which was not literal in order to avoid an anomaly of the law – a creditor holding an ALLPAAP defeating another creditor holding a PMSI with respect to assets which would not have formed part of the debtor’s property had it not been for the refinancing provided by the PMSI-holding creditor.