In the case of De Bourbel Pty Ltd (in liq) v Distilleria Pty Ltd & Anor [2023] SASC 88, the Court considered whether a lease of goods and bailment constituted a PPS lease within the meaning of the Personal Property Securities Act 2009 (Cth) (PPSA).

Background

In 2018, Mr Rochfort and Mr Ursini started a whisky distillery business under the name of “Rochfort Distillery” in Hindmarsh Valley, South Australia. A piece of land was purchased, and a distillery was built on the property to produce whisky. Two companies were incorporated. Distilleria Pty Ltd (Distilleria) was the owner of the property. De Bourbel Pty Ltd (De Bourbel) was incorporated to conduct the distillery business trading and was occupier of the property. The arrangements and understanding upon which the business was founded was never formally documented.

Unfortunately, the relationship broke down and in 2020, Distilleria issued De Bourbel with a notice to remedy default for unpaid rent. De Bourbel denied rent was payable and did not pay any amount owing.

The property was repossessed by Distilleria and De Bourbel was evicted. Shortly after, De Bourbel was placed into voluntary liquidation and in 2021, proceedings were brought by the liquidator of De Bourbel against Mr Usini and Distilleria.

Several issues were raised in De Bourbel’s claim but this article will focus on the question of ownership and possession of assets and the application of the PPSA.

Plant and equipment

De Bourbel’s primary case on plant and equipment was that they were assets of De Bourbel bought with funds loaned by Mr Ursini. Alternatively, De Bourbel argue that the plant and equipment was leased from Distilleria, in which case it was the subject of an unperfected security interest and vested in De Bourbel under the PPSA.

Does the lease constitute a PPS Lease?

De Bourbel argued that if the plant and equipment was not owned by De Bourbel, there was an arrangement to lease them for a fee and this was a PPS lease within section 13 of the PPSA.

This was important because if it was a PPS lease, the security interest in the plant and equipment vested in De Bourbel when it went into liquidation. This is a result of section 267 of the PPSA that states that an unregistered security interest would vest in a company that has gone into liquidation. If this occurs, a liquidator of a company would have recovery rights to certain properties.

To establish this, De Bourbel had to prove that:

There was a lease of goods from Distilleria to De Bourbel;
That the goods constituted ‘personal property’ within the meaning of section 10 of the PPSA (that is, the plant and equipment were not fixtures); and
Distilleria was regularly engaged in the business of leasing goods.

The Court held that there was a PPS lease because:

The plant and equipment were leased to De Bourbel;
Some of the plant and equipment were personal property (but not the manufacturing distillery equipment); and
Distilleria was regularly engaged in the business of leasing goods.

In reaching the conclusion in 3 above, the Court said that the relevant question for consideration was whether leasing goods was a proper component of Distilleria’s business, not frequency of transaction. The Court pointed out that the purpose of incorporation of Distelleria related to the leasing of plant and equipment to De Bourbel and therefore, a PPS lease existed.

PBO Barrels

Part of the Rochfort Distillery’s business was to run a barrel purchase program for private barrel owners (PBOs).

Rochfort Distillery created its own single cask single malt whisky barrel which was sold to enthusiasts as an opportunity of buying 100 litres of single malt whisky with a guaranteed buyback on maturity, generally between four and five years after the barrel was filled (the PBO Terms). The purchaser had an option at expiry of the term to keep the entire contents of the barrel or to sell the whisky to Rochfort at the guaranteed buyback price.

The PBO Terms stated that clear title to the whisky remained with the purchaser until the purchaser had exercised one of the options available.

Bailment

De Bourbel argued that this arrangement amounted to a bailment.

A bailment comes into existence when a bailer (in this case, the PBO) delivers the bailor’s goods (whisky) into the possession of another person upon (De Bourbel) an express or implied promise that they will be delivered to the bailor or dealt with in a stipulated way.

The Court found the PBO Terms constituted a bailment as the PBO barrels were in the care, custody and control of De Bourbel at all times for the purpose of determining when the whisky matured and was ready for bottling.

Does the bailment constitute a PPS Lease?

De Bourbel argued that the bailment was a PPS lease and the PBO barrels were vested in De Bourbel immediately prior to liquidation under the PPSA by operation of section 267.

The Court found that there was no PPS lease.

The Court was not satisfied that the PBOs were engaged in the business of bailing goods. It was not proven on the evidence adduced that each PBO barrel holder, as bailor of the barrel whisky, regularly engaged in the business of bailment.

Takeaways

In the event there is a failure to register a security interest, the unregistered security is vested in the grantor upon entering into insolvency.

To prevent a security interest vesting in the event of insolvency, it is important to protect one’s security interest and a proper registration of a security under the PPSA will have that effect.

Kelvin Tay
Senior Associate
T: +61 3 9611 0148 | M: +61 413 557 157
E: ktay@sladen.com.au

Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au

Ben Wyatt
Principal Lawyer
T: +61 3 9611 0115 | M: +61 409 173 928
E: bwyatt@sladen.com.au