By Hayley Hitch, a Solicitor of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group.
A Personal Property Security (“PPS”) registration is effective from the date of registration. However, many variables or factors may invalidate a registration and therefore cause issue in respect of priority placement between security interests.
In the matter of Accolade Wines Australia Limited and Ors [2016] NSWSC 1023 (“Accolade”), the Plaintiffs registered a security agreement on the PPS register against various grantors. However, the Plaintiffs registered the security interest under the name and ABN of each grantor but failed to register the agreement under the ACN of the various grantors. By failing to register the PPS under the ACN of each relevant company, this invalidated the PPS registration.
The issue with not registering a security interest against a grantor’s ACN is that a search of the PPS register in respect of a corporate entity will not show all security interest which should appear against the entity’s record.
Furthermore, pursuant to s 164 and 165 of the Personal Property Securities Act 2009 (Cth) (“the Act”), there will be a defect in registration of a security interest if the registration lists both the interest as a Purchase Money Security Interest (“PMSI”) and not a PMSI. The Plaintiffs did just that, which again meant the registration was ineffective.
The Plaintiffs therefore brought proceedings in order to seek relief from the Court to extend the period of time required for the Plaintiffs to perfect registration of the required security interests pursuant to s 62(3) of the Act.
In considering the application, Justice Brereton in the Supreme Court of New South Wales firstly made the point that, normally, any proceedings commenced in respect of security interests against companies must join such companies and any other secured party to the proceedings, and serve on the companies and secured parties all relevant court documents. In Accolade, the proceedings were commenced ex parte and without serving any documents on the companies. However, the Plaintiffs did give notice of the application to the grantors and as no grantor opposed the application, the Court was prepared to proceed with the application ex parte.
In order for a Court to grant an extension of time to perfect registration of security interests, the following elements need to be established:
- The failure to register the collateral must be accidental or inadvertent or for some other sufficient cause, or not such as to prejudice the position of creditors or shareholders; and
- It must be just and equitable to grant relief.
If the Plaintiff is to rely upon its own inadvertence, the proper officer of the Plaintiff is required to provide direct evidence of such inadvertence.
Justice Brereton was satisfied that the failure to effect timely registrations by the Plaintiffs was due to inadvertence.
The Court was also satisfied that no prejudice would be suffered by other creditors with PMSI registrations on the grantors, as the Plaintiffs had registered security interests over specific collateral (subject to the lease/security agreement). However, the errors made when registering the security interest by the Plaintiffs, causing the registration to be ineffective and invalid, may have enabled other creditors to achieve priority over the Plaintiffs. Additionally, prejudice would be caused to All Present and After-acquired Personal Property (“AllPAP”) registered interest holders as they would lose priority to which they might otherwise have been presently entitled.
However, Brereton J considered that it would be very unlikely that creditors with AllPAP registrations would be prejudiced due to the specific collateral of the Plaintiffs’ registrations. Therefore, an extension was granted to the Plaintiffs and orders were made for the Plaintiffs to file an Amended Originating Application joining all relevant parties to the proceedings and required to be served, together with the Orders made, on each relevant party.
Registration of PPS may be difficult and it is sometimes difficult to ensure that the correct interest is registered, the correct entity has been input and that no error occurs during the registration process that may prevent the registration from being effective or valid.
Accolade demonstrates the dangers a PPS registration can cause to a priority listing against a company which may lead to loss of security over property, or other issues. Should you wish to lodge a PPS registration, it is prudent to ensure all possible information is provided during the registration process and to be decisive upon which form of PPS registration (such as PMSI or AllPAP) you may wish to hold.
Read the judgment here(link is external)
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact Hayley Hitch at hayleyh@matthewsfolbigg.com.au, or a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au
Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au
