It is a truth universally acknowledged that a secured party with a security interest in personal property it supplies to a customer, must be in want of a way to protect that security interest as against third parties.
To Register or not
The Personal Property Securities Act 2009 (Cth) (PPSA) came into effect on 30 January 2012. For the seven years since its introduction, creditors supplying to customers had looked to perfect their security interests by registering them via the Personal Property Securities Register (PPSR).
The protections gained through registering property via the PPSR are most relevant in circumstances where either a customer has entered insolvency, or a third party has claimed an interest in the personal property that a creditor has supplied. However, over the past seven years, creditors have come to realise:
(i) the importance of adhering to registration time limits; and
(ii) that their registrations may contain errors.
Important time limits
There are two important statutory time limits to be aware of when dealing with PPSA security interests:
- If dealing with a corporate Grantor: section 588FL of the Corporations Act 2001 (Cth); and
- If registering a Purchase Money Security Interest (PMSI): section 62 of the PPSA.
588FL Corporations Act 2001
Generally speaking (apart from a few exceptions), where a corporate Grantor goes into voluntary administration or liquidation, you will lose the benefit of your security interest if it was registered less than 6 months prior to the start of the administration or liquidation process – except where you have registered within 20 business days of the security agreement giving rise to the interest coming into force.
With this said, if you have registered your security interest outside of these time parameters, you can still apply to the court to extend the time.
Section 62 of the PPSA
Where the personal property is supplied to your Grantor, other than as inventory, you have 15 business days to register a PMSI:
(i) For goods: calculated from the day that the Grantor obtains possession of the goods; and
(ii) For other personal property: calculated from the day that the security interest attaches to the personal property.
If you have registered your security interest outside of these time parameters, you can still apply to the court to request an extension of time.
Applying to the Court – A practical lesson in what’s involved
The case of IBM Global Financing Australia v Applied Business Technology Pty Ltd [2018] NSWSC 1984 demonstrates some key considerations with regard to both seeking to correct errors in PPSA registrations, and seeking to extend time under both the Corporations Act 2001 and the Personal Property Securities Act 2009.
In this case, the applicant was a company involved in the leasing and financing of computer equipment. The company had registered security interests over such arrangements with its customers (Grantors) between July 2012 and December 2017 – however, by December 2017 it realised on review, that there were errors in some of the registrations.
These errors were that:
- IBM Global had registered on PPSR describing itself using its ABN rather than its ACN (where it was not a secured party, which was a trustee);
- It had registered against its Grantors, using the Grantor’s ABN rather than its ACN (where the Grantor was not a trustee of a trust).
On realisation and commercial review, for the most important (and still current) ones, IBM Global implemented new registrations, correcting the errors, and then made application to the Supreme Court of NSW seeking that the time limits be extended – meaning that the new registrations were valid and maintained their priority.
Joined to the application to the Court were:
(i) the Grantors, against whom IBM Global had registered; and
(ii) other secured parties who would be seen as ‘competing’ secured parties with regard to the personal property, the subject of IBM Global’s security interests.
Some Key considerations for the court
The Court reiterated the position set out in Future Revelation Ltd v Medica Radiology & Nuclear Medicine Pty Ltd [2013] NSWSC 1741, that an error in registering on PPSR using the secured party’s ABN rather than its ACN was not an error type that would render the registration ineffective.
This error could potentially render the registration ineffective where it occurs in relation to the Grantor’s details. This is because where the error only occurs in relation to the secured party details, it would not affect the registration appearing in a search carried out on the Grantor.
Some of the key factors taken into consideration by the Court were:
In terms of The Corporations Act 2001‘s time limits extension application:
(i) any delay by IBM Global in bringing their application, and whether such a delay was unreasonable;
(ii) whether any objections were raised by any of the joined parties; and
(iii) whether the errors arose through inadvertence or accident
In terms of the PPSA time limits extension application:
(i) whether the need to extend arises as a result of accident, inadvertence or some other sufficient cause;
(ii) whether extending the period would prejudice the position of other secured parties or creditors; and
(iii) whether any person has either acted or not acted having relied on the period having ended.
Following a thorough review of each of the above considerations, the Court was satisfied that orders should be made extending the time periods for registration. However, the orders were made subject to a reservation permitting any party affected by the orders (but who may not have been joined to the application) being able to apply to set the orders aside. This reservation is common within such applications.
Key Takeaways
Now is an opportune time to consider the following:
- Review your PPSA registrations to ensure that you have registered correctly with regard to details and timing;
- If errors are found, assess how many affected registrations are still even current or required – similarly, assess the commercial value to your business of ensuring that these errors are corrected;
- Promptly look to correct the error(s) by way of new registrations;
- Ascertain (by writing to other secured parties) the nature and details of their security interest as competing security holders in order to make a judgment about how likely theirs may conflict with yours.
- Consider (as a back up to implementing new registrations) an application to the Court along the lines of that in the matter of IBM Global Financing Australia v Applied Business Technology Pty Ltd. Prior to making such an application to the Court, invite the other potentially competing security holders to consent to the orders that you intend to seek.
At the end of the day, the most important points to keep in mind are that you should seek professional legal advice and act promptly at all times. If you have a query relating to any of the information in this article, or you would like to speak with a member of Coleman Greig’s Commercial Advice team with regard to your own registrations – please don’t hesitate to get in touch:
