This week's TGIF considers a Federal Court decision
regarding registration and perfection of a security interest, in
circumstances where the grantor later became
The Applicant loaned $250,000 to the Respondent. A security
agreement which gave rise to a security interest was executed over
the Respondent's personal property. However, the
Applicant failed to register the security interest on the Personal
Property Securities Register until nearly five months after the
security interest was created. Shortly after the security
interest was registered, the Respondent entered into voluntary
The Applicant sought to enforce its security interest against
The Respondent's position was that as registration of the
security interest occurred more than 20 days after the security
interest was created and the security interest was perfected by
registration only, the security interest vested in the Respondent
under s588FL(2) of the Corporations Act.
The Applicant argued that their security interest was
perfected not by registration only, but by a combination of
attachment to the collateral and enforceability as against third
parties, such that s588FL(2) did not apply to the security
The Court rejected the Applicant's argument and found that
for the purposes of s588FL(2),attachment and enforceability are not
other means of perfection. Rather, they are mandatory prerequisites
to perfection. In other words, for the purposes of s588FL(2), once
attachment and enforceability occur, a security interest may be
perfected by a number of means, including registration, possession
In this case, perfection occurred by registration only and the
security interest therefore vested in the Respondent.
This decision offers a cautionary tale about the dangers of
failing to register security interests in a timely manner,
particularly in circumstances where the grantor ultimately entered
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.
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A recent NSW decision has implications for liquidators of trustee companies dealing with trust funds and priority debts.
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