With the commencement of the Personal Property Securities Act 2009 (Cth) (PPSA) now more than seven years behind us, the importance of registering your security interests and getting the registrations right has become very apparent. A number of cases over these years demonstrate the cost of not having appropriate procedures in place for making registrations on the Personal Property Securities Register (PPSR).
In the first series of cases below, the secured party (eg lessor, chargee) has a security interest but has not made a registration on the PPSR (and not “perfected” by other means).
Registration on the PPSR is the most common and available method of “perfecting” security interests under the PPSA.
Where a security interest over a company is not perfected and one of the following occurs:
then the security interests will “vest” in the grantor and be extinguished. A security interest over an individual that is not perfected will also vest if a sequestration order is made against the individual or the individual becomes a bankrupt. (Refer, for example, to section 267 of the PPSA.)
This will mean, for example, that the assets of the grantor will cease to be subject to the security interest or leased assets will become assets of the grantor free and clear of the security interest. The secured party/lessor will then be an unsecured creditor.
This headline case was an expensive lesson involving equipment valued at around $44 million.
In this case, the lessor of four gas turbine generators did not register its security interest over the equipment. The court held that the interest of the lessor was a PPS Lease under the PPSA and so it was an unperfected security interest.
The lessee appointed voluntary administrators and the security interest vested (ie. was extinguished) with the turbines becoming part of the lessee’s property.
In this case, a landlord loaned $460,000 to its tenant and took a charge over the plant and equipment acquired with the loan funds. The landlord did not register its security interest.
When the lessee appointed a voluntary administrator, the security interest in those assets vested in the lessee (ie it was extinguished).
There are a number of different timeframes under the PPSA and the Corporations Act 2001 (Cth) (Corporations Act) by which registrations on the PPSR need to be made. Failure to register within these timeframes may cause the secured party to lose certain rights against the grantor or the security interest to vest in the grantor.
In this case, formwork equipment was leased to the grantor by the secured party. A PPSR registration was made, however, this was more than 20 business days after the first equipment was provided.
Under section 588FL of the Corporations Act, if registration is made against a company more than 20 business days after the relevant security agreement came into force, but less than six months before the occurrence of one of the items in paragraphs (a) to (c) above, then the security interest can vest in the grantor.
Accordingly, the court held that, in respect of any equipment provided under leases commencing more than 20 business days before the PPSR registration, the security interest had vested.
The relevant property or “collateral” was valued at over $1 million.
While most secured parties are now aware of the need to make PPSR registrations, we see a number of cases and matters where registrations do not comply with the requirements for registrations under the PPSA.
It is vital for secured parties to ensure that they have in place appropriate procedures and training for staff making PPSR registrations, as well as legal oversight of the preparation of those procedures.
In the below series of cases, registrations have been made on the PPSR, but not necessarily correctly.
This case involved $23 million worth of equipment provided under a lease.
The secured party did made a registration on the PPSR, however, the registration was made against the ABN of the grantor, whereas the PPSA and its regulations require that the registration in this case should have been against the ACN.
The court found that:
In this case, which Gadens wrote about in 2018, registrations were similarly mistakenly made against the ABNs when they should have been made against the ACN.
While in the above cases, the registrations on the PPSR should have been made against the ACN rather than the ABN, in other situations the registrations should be made against the ABN. Determining the correct identifier for a PPSR registration in each situation can be complex and, given the risk if it is not correct, it is important that advice is sought to ensure that registrations are made against the correct identifier.
As can be seen from the above cases, it can be a very costly mistake if a security interest is not registered on the PPSR or is registered incorrectly.
It is vital that any business that might have security interests have in place appropriate PPSR registration procedures given the technical nature of the requirements of the PPSA.
If a secured party does have issues with its security interest registrations, then there may be steps that can be taken, however, it is important that these are taken as soon as possible. Legal advice should be sought in this circumstance and, even if these steps are taken, priority of ranking may be lost.
Matthew Trinca, Senior Associate