In the matter of David Brown Gear Industries Pty Ltd  NSWSC 907, the Plaintiff sought orders pursuant to section 588FM(1) of the Corporations Act 2001 (Cth) (Act) for an extension of time to register a security interest on the Personal Property Securities Register (PPSR) over assets of the Defendant.
On or about 12 July 2016, the Plaintiff and the Defendant entered into a General Security Deed whereby the Defendant granted the Plaintiff a security interest in all of the Defendant’s present and after acquired property. This security interest was registered on the Personal Property Securities Register (PPSR) on 13 July 2016, however was registered against the ABN of the Defendant, not its ACN, and therefore not in compliance with the provisions of the Personal Property Securities Act 2009 (Cth). In late January 2017, upon the Plaintiff realising the error, it registered a further financing statement against the ACN of the Defendant.
Pursuant to section 588FL of the Act, if a security interest is not registered on the PPSR within 20 business days of the security interest being granted, and the grantor enters liquidation, administration or a deed of company arrangement within the 6 month period following the registration of the security interest, the collateral to which the security interest relates will vest in the grantor. This obviously poses huge risks to secured parties who are relying on collateral as security under an agreement.
In this matter, once the security interest was correctly registered against the ACN of the Defendant, it was at risk of the consequences provided by section 588FL because it was registered outside of the 20 business days. Section 588FM(1) provides that a company or interested person may apply to the court for an order fixing a time later than the 20 business days by which the security interest must be registered in circumstances where the court is satisfied that:
- the failure to register the security interest earlier:
- was accidental or due to inadvertence or some other sufficient cause; or
- is not of such a nature as to prejudice the position of creditors or shareholders; or
- on other grounds, it is just and equitable to grant relief.
In this matter, the court granted the extension sought and cited the following reasons:
- Inadvertence – the court was satisfied that the error in registration occurred as a result of inadvertence, as the solicitor who registered the security interest in the first instance failed to recognise the need to register against the ACN of the Defendant.
- Increased awareness of the issue due to recent cases – the solicitors became aware of the inadvertence because, at the time, the importance of registering against the ACN of a company had been recognised in several cases.
- No prejudice to creditors or shareholders – the evidence lead by the Plaintiff established that an extension of time to register would not prejudice creditors or shareholders. Although there were a number of security interests registered after the Plaintiff’s initial interest, each were purchase money security interests (PMSIs) which would have been afforded priority to the Plaintiff’s interest anyway.
- Acted promptly upon realisation of the error – once the solicitors realised the error, they acted promptly to address the issues by, among other things, bringing this application.
- Defendant does not oppose the orders – the Plaintiff relied upon a letter from the CFO of the Defendant which confirmed that the Defendant did not oppose the orders sought in the application; confirmed that there had been no material change in the Defendant’s financial position since the first security interest was registered; and confirmed that the Defendant was solvent.
- Defendant had not granted any other security interests in the same collateral – in the letter from the CFO, the Defendant also confirmed that it had not granted any other security interest in the assets of the Defendant save for the PMSI interests referred to at  above. A PMSI interest relates to new and specific collateral and therefore is not the same collateral as the interest granted to the Plaintiff.
The court referenced a number of recent decisions and confirmed that the case law in this area is now well established. We learn from this case that where an error is made in the registration of a PPSR security interest, it is important to be transparent with the court and try to fix the issue sooner, rather than later (or not at all).
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