Insolvency Insights: Disputed goods, PMSIs, liens and administrators

Competing claims to goods are common where there is an unpaid seller with alleged retention of title, the supplier’s customer has gone into external administration and the goods are in the possession of a transport or warehouse provider. Thrown into the mix may be an administrator or liquidator demanding possession of the goods to sell them.

The recent case of M Webster Holdings Pty Limited (administrators appointed) v Specific Freight Pty Limited [2017] FCA 269, illustrates how the transport provider can become ‘the meat in the sandwich’. The case also provides guidance as to the type of orders that can be obtained by an administrator to enable the goods to be sold, pending the disputed ownership being resolved.

Background

Webster, a fashion retailer, was placed into administration in February 2017 and its administrators continued to trade with a view to securing a purchaser.

Webster engaged Specific Freight, a freight forwarder, to provide services in respect of stock it had purchased from overseas suppliers. Before going into administration, Webster had ordered various consignments of clothing that:

• had cleared customs and were held by Specific Freight;
• were yet to clear customs but were destined to be held by Specific Freight; or
• were in transit.

The overseas suppliers had rendered invoices that had not yet been paid. Some invoices had retention of title clauses, although no security interests were registered on the Personal Property Securities Register.

The suppliers were demanding that Specific Freight return the goods.

The administrators of the fashion retailer sought to have the freight forwarder deliver the clothing to Webster, some of which had been ordered online by customers. The unavailability of the clothing was likely to adversely affect efforts to sell Webster’s business.

The lien

Specific Freight’s initial claim for a lien was satisfied as the administrators paid all outstanding charges owed to the freight forwarder. The administrators gave a further undertaking that they would meet all future lawful charges incurred by Specific Freight.

Specific Freight remained concerned that it might be sued by the suppliers if it released the goods to the administrators.

Orders made

The Federal Court, upon hearing an urgent application by the administrators, made orders that:

(a) the goods held by Specific Freight be delivered to the administrators;

(b) the administrators were entitled to:

(i) possession of the clothing; and

(ii) sell the relevant clothing in the ordinary course of the Webster’s business (subject to the creation and observance of the fund mentioned in paragraph (c);

(c) the administrators must, pursuant to section 442CC(2) of the Corporations Act, set aside the net proceeds of sale of the clothing with that fund to be applied to meet the claims of the suppliers whose goods were subject to a retention of title clause.

If you would like more information about these issues, please contact Graham Roberts on +61 7 3231 2404.