The following examples outline issues that have arisen since the commencement of the Personal Property Security Register (PPSR) on 30 January 2012.
WOW Sight and Sound
This Queensland based electronics retailer went into receivership on 27 February 2012. It was the first major receivership after the commencement of the PPSR. Many unregistered creditors including a lot of retention of title (ROT) suppliers were caught out as the receivers advised that they would only honour ROT claims where there was a registered security interest on the PPSR.
>> Lesson: Perfect your security interest NOW!
Carson, in the matter of Hastie Group Limited (No 3) [2012] FCA 719 (5 July 2012)
Voluntary Administrators were appointed to 44 entities in the Hastie Group, a number of which were involved in projects across about 1000 sites in Australia. Administrators found that Hastie Group held a large number of items of plant and equipment at 36 of their sites with an estimated auction value of $6.4 million. The problem was that Hastie’s books and records did not provide a sufficient description of the plant and equipment and many items had been moved between sites. At the time Hastie Group had more than 955 registrations on the PPSR. It proved extremely difficult for the Administrators to rely on the PPSR to identify property that was subject to third party security interests.
In an effort to identify each creditor’s interest, the Administrators wrote to each creditor requesting a summary of their security interest. Interestingly, about 80% of the creditors did not respond at all. Of those responses which were received, they provided little assistance to the Administrators because they did not particularise the equipment or the security agreement under which the security interest was said to arise.
At the time the Administrators applied to the Court to dispose of the plant and equipment approximately 3,684 items remained ‘unclaimed’. The Court accepted that the Administrators had taken a number of steps in an attempt to clarify the identity of the plant and equipment and the creditors to whom they belonged. The Court allows the Administrators to advertise and sell the items at auction then hold proceeds for 3 months before applying unclaimed proceeds to the administration of the companies.
>> Lesson: Make sure the description of the collateral is clear and enables items to be identified as accurately as possible.
Re Cardinia Nominees Pty Ltd [2013] NSWSC 32
This was an application to the Court seeking an extension of time for a security interest to be registered under s 588FM of the Corporations Act. Cardinia, as representative of 11 investors, agreed to lend $725,000 to Inika Pty Ltd on the basis that Inika would execute a Secured Convertible Bond Deed in favour of Cardinia.
In the Deed, dated 3 August 2012, a clause provided that “Inika will grant the Charge as security for payment by Inika to the Bondholder of the aggregate Total face Value and accrued but unpaid Interest. Promptly following the issue of convertible notes to the Bondholder, will at its cost, stamp and register the Charge with the appropriate regulatory authority”. Cardinia’s security interest was not registered until 7 September 2012.
The Court acknowledged the ambiguity in the clause as to who was responsible for registering on the PPSR. Cardinia’s director argued that he was unaware of the consequences of late registration and failure to register was accidental or due to inadvertence. The meaning of “inadvertence” in this context was discussed by the Court which found that where a party operates under a mistake as to the consequences of failing to register a security interest, i.e. error of a secured creditor in not attending to registration within time, is innocent and does not result from any disregard of its statutory obligations.
The Court was satisfied that Cardinia had established that failure to register the security interest was due to inadvertence, which was sufficient to grant order sought under s 588FM. The Court also noted that if necessary it would have held that the ambiguity of the clause of the Deed made it just and equitable to grant the extension of time.
>> Lesson: Be aware of the consequences of late registration, ensure all security interests are registered in time to ensure they effectively protect your security interest.
Re Barclays Bank plc [2012] NSWSC 1095
This case was another out of time registration where the Plaintiff sought an order under s 588FM of the Corporations Act fixing 9 August 2012 as the registration time for security interests granted to Barclays.
In January 2012 Barclays provided a £800 million term loan facility to a UK publicly listed company, Sportingbet plc. Centrebet (an Australian company within the Sportingbet group) executed a General Security Deed on 24 April 2012. Centrebet received legal advice which stated; “in order to perfect the security interest created under the Deed, a financing statement should be registered in respect of the collateral within 20 business days of the day the deed comes into force”. A financing statement was not registered until 9 August 2012, being 2 months after the expiration of the 20 business day registration period.
The Court noted that errors of this kind would inevitably occur as companies, and solicitors alike, have not appreciated the consequences of non-registration within time. Especially in matters which had previously given rise to applications for extension of time under s 266 of the Corporations Act. The Court held that failure to register was due to inadvertence, which included bring not properly attentive, or failing to understand the requirement to lodge notice a security interest within the specified period and the consequences.
Relevant factors in granting the order sought was that the delay in time was not particularly lengthy, Centrebet had demonstrated solvency and had no other security interests registered during the 2 month period of delay.
>> Lesson: inadvertence must be genuine, careless delay will not be sufficient. In an extension application the Court will consider of the impact on other creditors. Extension is possible, but not worth the risk, ensure you register on time!
