In Re Arcabi Pty Ltd (Receivers & Managers Appointed) (in liq) [2014] WASC 310 the Supreme Court of Western Australia had to determine how the bank-appointed receivers of a business which included storage and sale of rare coins and bank notes held on consignment for numerous investors would deal with the goods.

The Receivers formed the view that a substantial number of items were not the property of Arcabi or subject to any security in the Bank’s favour under the Personal Property Securities Act 2009 (Cth) (PPSA) and so should be returned to the Investors.

Usually Arcabi offered an Investor three methods by which they could dispose of their Goods. They could be sold to a third party on a consignment basis, either privately or at auction, or Arcabi could offer to repurchase them. The issue was whether the Investors needed to register their interest under the PPSA.

The Receivers sought directions as to whether in their capacity as the Receivers and Managers of Arcabi they were justified in:

(a) returning to Investors certain Goods which were part of an arrangement between Arcabi and an Investor whereby Arcabi would store such Goods at the Premises (referred to as ‘Mixed Storage Goods’);

(b) returning to Investors certain Goods which were part of an arrangement between Arcabi and an Investor whereby the Investor requested Arcabi to sell the Goods on consignment, when these Goods had not sold at the time of the appointment of liquidators to Arcabi and remained at the Premises (referred to as ‘Consignment Only Goods’);

(c) taking out insurance for Goods stored at the Premises, including Goods of the Investors; and

(d) seeking to recover a proportional contribution towards those insurance costs from Investors, except in the case of Investors who informed the Receivers they did not wish them to take out insurance for their Goods.

In assessing the application, the difficulty related to the number of Investors and the lack of written contracts. The Court accepted the Investors’ responses to questionnaires as evidence.

The Receivers sent more than 700 consignment creditors a questionnaire. In the questionnaire the Receivers asked the consignment creditors whether they believed Arcabi sold coins/bank notes on behalf of others. Over 84% of consignment creditors who responded indicated they did believe that Arcabi sold coins/bank notes on behalf of others.

The Court held that Arcabi’s consignment did not constitute a security interest under the PPSA because the consignment was not intended to secure a debt due by Arcabi.

The arrangement between Investors and Arcabi for Mixed Storage Goods arose generally by way of an Investor directing Arcabi to store the Goods and Arcabi issuing a storage invoice.

The Court found that the Investors owned the Mixed Storage Goods and it was appropriate that the Receivers returned these goods to the Investors.

The Court decided that “the storage arrangements between Investors and Arcabi did not secure payment or performance of an obligation. They reached that conclusion for a number of reasons. First, having considered the records and made due enquiry there was no suggestions the Goods would vest in Arcabi on the expiry of the bailment. Second, there was no suggestion that Arcabi would have an obligation to purchase the Goods. Third, the term of the arrangement was not likely to be for the major part of the economic life of the Goods as those Goods had an indefinite life subject to storage conditions. Finally, the nominal payment for the bailment – which was usually $240 – did not equate to the capital cost of the Goods.”

The Court concluded this was not a case where the bailment was in substance a security interest or a PPS lease.