Since the introduction of the Personal Property Securities
Act 2009 (Cth) (PPSA), there has been very
little case law concerning the interpretation of its provisions.
Many of the reported decisions have involved creditors trying to
frame their claims as falling outside the PPSA. This is probably
because the priority rules which apply are quite simple – for
example, a perfected interest trumps an unperfected interest. So,
whenever a new case is decided, it is usually worthy of
On Wednesday, 24 September 2014, the Federal Court of Australia
delivered a decision confirming that a failure to properly perfect
a security interest in the shadow of insolvency, will result in the
vesting of the personal property in the insolvent
Brief review of the PPSA
The PPSA introduced concepts of attachment and perfection. The
interest of a creditor in personal property 'attaches' to
the property when the relevant financing transaction occurs.
However, the security interest is not 'perfected' until a
financing statement is registered (or some other form of
perfection, such as possession, applies). Attachment is a
significantly lower level of protection for a creditor than
The applicant had lent $250,000 to Australian Gaming and
Entertainment Ltd (in liq) (AGE) on 24 December
2013. The money was paid over and a security agreement was executed
that day. Therefore the security interest 'attached' to the
personal property on that day. However, the security interest was
not registered until 19 May 2014. Seven days later, on 26 May 2014,
five months after attachment of the security interest, AGE was
placed into voluntary administration. It was placed into
liquidation on 1 July 2014.
Section 588FL of the Corporations Act 2001 (Cth)
(Corporations Act) relevantly provides that if a
company is placed into administration or liquidation (insolvency
event) and a security interest may be perfected by registration
(and by no other means), then if registration did not occur within
twenty business days of attachment and an insolvency event occurs
within six months thereof, the interest in the personal property
vests in the company in administration or liquidation.
Practitioners will recall a very similar regime was in place in
relation to fixed and floating charges under the previous
Corporations Act provisions.
The principal issue in these proceedings is immediately
apparent: unless the lender could demonstrate 'perfection'
of its security interest by means other than
registration, then the personal property sought to be
secured would vest in the liquidator because it was not
'perfected' in time.
Other means of perfection available to a security interest
holder are possession of collateral and control of collateral.
There is also the prospect of temporary perfection of security
interests. None of these means were available to the applicant. The
applicant was left to argue that the relevant transaction did not
fall foul of Section 588FL because their interest was perfected by
attachment and enforceability and
registration (and not merely registration).
Unsurprisingly, the Court found that such a statutory
construction was not open, and that although the applicant's
security interest attached, it was not perfected within twenty
business days thereof. Given that it was created within six months
prior to the administration of AGE, it was unenforceable against
the liquidator and the personal property vested in the insolvent
The decision is a practical reminder to insolvency practitioners
(and lenders) that:
Attachment is but one step under the PPSA regime. Perfection of
an interest is also required in order to fully protect one's
interest in property;
In an impending insolvency situation, those with security
interests need to perfect their interests within time;
Perfection can occur in a number of ways, but most commonly (in
a lender/borrower scenario) by way of registration of the security
interest in accordance with the PPSA; and
A failure to do so will render any such interest voidable
against an administrator or liquidator.
Of course, a lender who realises their error may apply to the
Court to extend time for registration of their security interest.
As a rule of thumb however, in circumstances where a creditor
cannot demonstrate solvency of the borrower, such an application
will face significant hurdles.
1Pozzebon (Trustee) v Australian Gaming and
Entertainment Ltd, in the matter of Australian Gaming and
Entertainment Ltd (in liq)  FCA 1034.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
This part will cover the legal position in relation to promotional materials and misleading and deceptive conduct.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).