The Personal Property Securities Act 2009 (Cth) (PPSA) has been in force now for just over one year. Has case law helped us in understanding the practical effects of PPSA? While Australian case law is sparse, we are able to extract some pointers.
The 'Hastie' Lesson i
When the Hastie Group of companies went into voluntary administration it presented the Administrators with a difficult task. There were a significant number of the companies' assets located at various project sites which company records did not adequately record.
The Hastie Group also had 995 security interests registered against it in the Personal Property Security Register ('PPSR). Inadequate detail in the registrations regarding the property secured, presented the Administrators with the herculean task of trying to identify and deal with these security interests. Attempts (which included written correspondence, emails and advertising) were made by the Administrators to contact creditors but a lack of response with adequate detail or at all within the relevant time frame stymied the Administrators' efforts. For example, many of the responses from these creditors did not adequately particularise the equipment or the security agreement under which the security interest arose.
The Administrators made application to the Court for directions regarding sale of the assets and distribution of the proceeds to the Administration. The Court was satisfied with the Administrators' attempts to date to identify and deal with security interests. It gave directions for them to realise the unclaimed assets subject to further notice to creditors and the Administrators waiting a further 3 months before seeking to apply the sale proceeds to the Administration.
A prompt response from secured creditors that identified the specific personal property covered by the security agreement would have helped to better protect their interests in the relevant secured property or proceeds.
Extending time to register a security interest
A security interest against a company grantor must be generally registered within whichever of these occurs last:
- 6 months before the 'insolvency' of the company;
- within 20 business days of the date the security interest was entered into or of the date of the insolvency of the company (whichever is earlier).
[Section 588FL of the Corporations Act 2001]
The date of the "insolvency" is the date the winding up commenced, an Administrator was appointed or the date grantor company executes a Deed of Company Arrangement.
If a security interest is not registered on the PPSR within time, the secured party is faced with possible loss of the personal property the subject of their security interest to the insolvent company unless the court extends time to effect the registration.
In re Barclays Bank PLC ii the oversight of Barlcays' UK lawyers in not registering within time and in not appreciating the consequences of this, was viewed as an 'inadvertence'. As extending the registration time was seen not to prejudice other creditors or interests, an application for extension was granted. The financial position of the grantor company, lack of opposition to the Bank's application for extension and lack of any other secured interests having been given in the interim was also considered in granting the Bank's application.
An extension of time was also granted in the case of Cardinia Nominees Pty Ltd iii however, it was only granted subject to certain conditions. This was because another security interest has been granted over a motor vehicle after the Cardinia charge and complete details of the grantor company's financial position had not been provided.
Extension of time by the court is within the court's discretion and factors such as prejudice to other parties, the financial position of the grantor company and the reason for delay will be important considerations weighed up. The Court granting the extension should not be your sole hope.
Is what appears to be a fixture, really a fixture?
We know that land is excluded from the definition of 'personal property' under PPSA and that 'land' includes a fixture that forms part of land.
So what happened when the Supreme Court of NSW had to decide whether two linear accelerators bolted onto steel base frames cemented into recesses in the floor were fixtures? The court used the common law tests of what is a fixture (including the extent an item was affixed to the land and purpose the item was brought onto the land) and noted that the lessor's interest in the accelerators had been registered on the PPSA to decide that the accelerators were not fixtures. iv
Key pointers from case law
- Be aware of the time limits within which to register on the PPSR. Don't rely solely on the hope you will make an application to the court for extra time to get around this.
- Maintain complete and proper records and processes to respond promptly and accurately to requests for information, especially from an Administrator or Liquidator.
- Take some heart from the consideration of what is a 'fixture' and look carefully at whether the property you sell or lease will become a fixture.
Footnotes
i Carson, in the matter if Hastie Group Limited (no 3) [2012] FCA 719
ii Re Barclays Bank PLC [2012] NSWSC 1095
iii Cardinia Nominees Pty Ltd [2013] NSWSC 32
iv Cancer Care Institute of Australia Pty Limited [2013] NSWSC 37
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
