Discuss about the Case Law on PPSA.
On January 30, 2012, a significant reform in the form of a new national register of security interests, in personal property, took place. The Personal Property Securities Register (PPSR) was this reform. PPSR enables a security holder to protect their position in the event of insolvency or a default by debtor. The present case deals with the concepts and provisions of PPSR. The facts of this case are very similar with the facts of Accolade Wines Australia Limited and other companies  NSWSC 1023 and hence, reliance has been made with the said case law to solve the given problem.
In the present case, Lease Co leased a commercial crane with serial number XYZ123 for a period of three years to Build Co. After failing to pay the lease amount to Lease Co, the Build Co went into voluntary administration on May 19, 2015. The administrators, after conducting a review of the PPSR for Build Co, found that the Lease Co’s registration on PPSR was filed against Build Co’s ABN and not is ACN. The administrators of Build Co, on May 21, 2015, determined that the Crane would not be returned to Lease Co and nor would the payment for rent be made because of defective PMSI.
As per section 588 FM of the Corporations Act 2001, any company or any concerned individual can submit an application to the Court for an order for getting a later time fixed, for the purpose of registration of a PPSA security interest. This section further states that when an insolvency- linked incident happens in matter related to such a organization, than section 588FL(2)(b) fixes a duration of time, by which a PPSA security interest established by the organization has to be registered under the provisions of Personal Property Securities Act, 2009 , failing which the security interest may vest in the organization. On such an application under this section, the Court may grant relief if it is satisfied that the failure to register was unintentional or due to inadvertence or on some additional ground which the Court finds just and equitable.
Section 293 of the Personal Property Securities Act 2009 (PPSA) states that on an application, the Court may put together an order for extension of number of business days in the period specified by various provisions of this act. The Court may grant such extension, if it is satisfied that it is just and equitable to do so. One of such provisions mentioned in this section relates to paragraph 62(3).
In this case, Lease Co should register their security interests against the ACN of the Build Co. But since, more than 20 days have elapsed after the security arrangement came into force (August 26, 2014), the security interests arising from the PPS lease would be vested with Build Co. the security interested vested with Build Co as it went into liquidation within six month of the registration. As per paragraph 62 (3) of the Personal Property Securities Act 2009 (PPSA), Lease Co could have enjoyed super priority but since the later registration was made after more than 15 days of delivery of goods to grantor, they could not claim the super priority of PMSI.
Lease Co should seek relief under section 588FM of the Corporations Act 2001 for effective extension of the time for registration of the security interests. Also, as per section 293 of PPSA, Lease Co should seek extension of period specified in Section 62(3) of PPSA in order to perfect its security interests.
Lease Co should clearly showcase that the registration was made by some employee who had no knowledge about the important distinction between an ACN and an ABN or about the effect it could have on the security interest. The aim of section 588FM is to alleviate the consequences of inadvertence especially where the error does not result in a prejudice. The importance of the passage of time is largely associated with the probability of opposing interests having arisen, in particular, through others having dealt with the company on the basis that the guarantee was unencumbered. So, the contention of Lease Co would be appropriate under section 588FM to fix a later time, specifically the date on which the new registrations were affected.
The provisions of section 293 of the PPSA allow a priority to the PMSI holder and application of such would result in bias against the creditors of Build Co. Such creditors would have been granted security over all of Build Co’s present and after acquired property (AIIPAPs). Also, they would have registered those security interests and would now lose their priority. But, this prejudice could not be conclusive on the two major grounds. Firstly, if the AllPAP holder took security from the relevant customer before the original PMSI registration, the earlier AllPAP holder would only be prejudiced by losing a windfall from inadvertence. Secondly, if the AIIPAP holder had taken security from the relevant customer, after the original PMSI registration, than it is very likely that they had a notice about the original PMSI registration. A reasonably prudent financier would have found the PPSR across the Build Co’s ANB, ACN and the company name, also known as the triple check. A search of these factors would have clearly revealed Lease Co’s PMSI registration. On these ground, Lease Co would be granted the necessary extension, under section 293 of PPSA, so as to perfect its security interests.
By applying these provisions, Lease Co can rectify its defective PMSI registration of crane, without losing priority. However, the probable bias against the creditors is a major factor and would require court’s discretion. And with the rectification of the defective PMSI, Lease Co can retrieve the Crane. With the rectified PMSI, Lease Co have the rights same as that of a creditor of Build Co. And so, they can request the administrators, to make them a creditor in the liquidation process and attain the outstanding rental amount.
Australasian Legal Information Institute, Commonwealth Consolidated Acts: Corporations Act 2001, Australasian Legal Information Institute, 2016 < https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/>
Australian Financial Security Authority, PPSR Overview, Australian Government, 2016 <https://www.ppsr.gov.au/ppsr-overview>
Federal Register of Legislation, Personal Property Securities Act 2009, Australian Government, 2016 < https://www.legislation.gov.au/Details/C2014C00273>
New South Wales Caselaw, Supreme Court New South Wales: In the matter of Accolade Wines Australia Limited and other companies  NSWSC 1023, New South Wales Caselaw, 2016 < https://www.caselaw.nsw.gov.au/decision/579581b4e4b058596cb9dc7e>