Australia: Applying to court to extend the deadline for registering on the PPSA — ask and you shall receive?

Last Updated: 24 October 2016
Article by Robert Lyons
  • The case highlights the importance of correctly registering security interests in accordance with the legislation.
  • The court was prepared to find that there had been 'inadvertence' on the part of Alleasing.
  • In cases where insolvency has occurred, the court may be presented with more forceful arguments as to why extensions should not be granted.

In the recent New South Wales Supreme Court case of In the Matter of Accolade Wines Australia Limited and other companies 1 , a secured party registered security interests on the Personal Property Securities Register (PPSR), but failed to do so within statutory timeframes resulting in it losing certain benefits attaching to its registrations. The case provides some guidance on when a court might be willing to extend the timeframe for a secured party to register its interests so as to not lose those benefits.

What happened?

  1. Alleasing Pty Ltd and Alleasing Finance Pty Ltd (Alleasing) were in the business of providing asset finance and leasing services to businesses. The leases were for a duration of greater than one year, and therefore were security interests within the meaning of the Personal Property Securities Act 2009 (the PPSA).
  2. When Alleasing entered into leases with customers, it would promptly register its interest on the PPSR.
  3. When conducting an audit of its PPSR registrations, Alleasing discovered that many registrations were defective as they were registered against the ABNs of their customers rather than the customers' ACNs. The PPSA and its associated regulations require that where a grantor (that is, the customers of Alleasing) is a corporation, to be effective the registration must be against the ACN of the grantor (not the ABN).
  4. Upon this discovery, Alleasing promptly took steps in June 2016 to register again the relevant security interests on the PPSR, this time referring to the customers' ACNs. The reasoning was that if the earlier registrations (against the ABNs) were defective, then Alleasing would be able to rely on the June 2016 registrations (against the ACNs). While this was undoubtedly the correct course of action for Alleasing to take, it gave rise to a timing issue under the PPSA and the Corporations Act. That is, the timeframe between when the leases were entered into and June 2016 meant that the June 2016 registrations did not occur within the timeframes imposed by those Acts.
  5. Alleasing applied to the court for an order to extend the timeframes imposed by the legislation, so that the June 2016 registrations would enjoy the benefits that they would have had if they were made on time.

What are the timeframes and what are the consequences of being late?

The Corporations Act 2001 (Corporations Act) and the PPSA each contain sections that provide for certain consequences if secured parties do not register their security interests on the PPSR within certain timeframes:

  1. Section 588FL Corporations Act — If a customer of Alleasing became insolvent within six months after Alleasing registered its security interest, the security interest would vest in the customer, meaning that Alleasing would lose all title to the property it had leased to the customer.
  2. Section 588FM allows a secured party to apply to court to extend this timeframe.

  1. Section 293 PPSA — Where Alleasing's security interests were purchase money security interests (PMSIs), they would lose the 'super' priority conferred on PMSIs if not registered within 15 days of the customers taking possession of the equipment.
  2. Section 293 allows a secured party to apply to court to extend this timeframe.

What did the court say regarding the section 588FM application?

The court granted Alleasing's application for extension so that the June 2016 registration would not vest in the customers upon insolvency. To grant an extension under s 588FM, the court must be satisfied that at least one of the following grounds apply:

  • the failure to register with time was accidental or due to inadvertence or some other sufficient cause
  • the failure to register within time is not of such a nature as to prejudice the position of creditors or shareholders
  • There are other just and equitable grounds to grant the extension.

The court decided that the first ground applied, that is Alleasing's failure to correctly register before June 2016 was due to 'inadvertence'. Alleasing led evidence to show that its employees who attended to the initial defective registrations had used a third party service provider platform (as opposed to directly using the PPSR website). That third party platform enabled registrations to be made by either ABN or ACN, and did not alert the employees as to the consequences of using one or the other. The employees therefore believed that the registrations by ABN were sufficient.

The court did not consider it necessary to determine if the other two grounds applied. However, the court did make some useful observations in relation to whether the delay would cause prejudice to creditors. In evaluating prejudice, a comparison is to be made between the position of creditors if an extension were granted, with their position if there had been an effective timely registration — often there will be no difference, as in either case the relevant property would not vest in the customer and therefore not be available for distribution to creditors.

What did the court say regarding the s 293 Application?

The court also granted this extension. For an extension under s 293, the court must take into account:

  • whether the need to extend arises as a result of accident or inadvertence or some other sufficient cause
  • whether extending the period would prejudice the position of any other secured parties or creditors.

The court held that the extension would prejudice other secured parties who had registered securities over all of the customers' present and after acquired property (AllPAPS). This is because as a result of the delayed registration, the AllPAP holders had priority over Alleasing in the goods the subject of Alleasing's security interests. However, if the court was to grant the extension, the AllPAP holders would lose their priority. However this prejudice was not conclusive in deciding whether the extension should be granted. In the case of an AllPAP holder who took security from a customer before Alleasing's initial invalid registration, the AllPAP holder would only be prejudiced by losing a windfall arising from the inadvertence. In the case of an AllPAP holder who took security after Alleasing's initial invalid registration, that AllPAP Holder would likely have had notice of Alleasing's interest as it is market practice to undertake searches of both ACNs and ABNs. Even if the later AllPAP Holder did not have such notice, it is unlikely Alleasing's interest would have been material to its decision to grant financial accommodation as Alleasing's security was over specified, limited property only.

Points to take away

The case illustrates the importance of correctly registering security interests in accordance with the legislation. What might be perceived as a minor error in the registration process might in fact invalidate the registration.

The court was prepared to find that there had been 'inadvertence' on the part of Alleasing, in circumstances where the error occurred because its employees were not aware of the statutory requirements when undertaking registrations.

It also illustrates the difference between prejudice under s 588FM of the Corporations Act and s 293 of the PPSA. In the case of the Corporations Act, the focus is on prejudice to creditors (both secured and unsecured) and shareholders, whereas under the PPSA the focus is on prejudice to other secured parties.

The court was prepared to look at the commercial practices that have developed in the finance industry since the PPSR was established — that is the court accepted that prudent secured parties will undertake searches by both ACN and ABN, even where registrations by ABN may not be valid.

It might also be observed that this case did not arise in an insolvency context — none of Alleasing's customers were in liquidation. Alleasing simply wanted to correct its failure, so that it would be protected if insolvency did occur. In future cases where insolvency has occurred, the court might be forced by the liquidator to address more robust arguments as to why extensions should not be granted.

Footnote

1 In the Matter of Accolade Wines Australia Limited and other companies [2016] NSWSC 1023

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.

Authors
Robert Lyons
 
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”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
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).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.