This week's TGIF considers In the matter of 4 in 1 Wyoming Pty Ltd & the companies listed in Schedule A to the Originating Process  NSWSC 407, where the New South Wales Supreme Court granted a financier an extension of time to register new and corrected financing statements.
An equipment finance company (Lessor) was prompted to conduct a review of its PPSA registrations after one of its registrations was challenged. That review showed flaws in the Lessor's registration processes including:
- The Lessor classified all security agreements as "transitional". Doing so when the agreements are in fact non-transitional would render each affected registration ineffective;
- The Lessor did not lodge the security interest against the ABN of the trust where the lessee was a trustee, a defect which would also render the affected registration ineffective; and
- The Lessor did not register for a PMSI where it would be otherwise eligible, which would see the Lessor lose its "super-priority" rights available where its PMSI is granted over particular collateral.
To remedy the situation, the Lessor filed more than 200 new, corrected financing statements, and then applied to the Court to extend the time for registration to give effect to those new financing statements.
The Lessor's applications were made under s 293 of the PPSA in respect of the PMSI interests and under s 588FM in respect of the other registrations. While the criteria differ for the different applications, in both instances the Court had to consider whether:
- the failure to register the collateral earlier was the result of an accident, inadvertence or some other sufficient cause; and
- the granting of additional time would prejudice the position of others, including other secured parties, creditors or shareholders.
Notably, the Lessor had to join more than 200 grantor companies, as well as the other secured creditors of those grantors, as defendants to give them a chance to challenge the proposed extensions.
The Court granted the extension of time for the registrations, as it was satisfied that the failures of the Lessor were accidental or due to inadvertence because:
- the Lessor was unaware of the deficiencies in its process of registration;
- the employees of the Lessor did not understand the legal significance of these deficiencies; and
- the errors were innocent and did not result from any disregard of its statutory obligations.
The Court also found there was no prejudice for the purposes of s 293 of the PPSA in respect of the PMSI interests as no grantors or other parties appeared to object to the amendments sought.
Although the solvency of each of the grantors was not considered in any detail, the Court also granted "Guardian Securities protection" to enable a liquidator, voluntary administrator or deed administrator appointed to any of the grantors to apply to the Court for a discharge or variation of the order in the event any of the grantors was wound up, placed into voluntary administration and subject to a deed of company arrangement within six months of the amended registration date.
As with the equipment financing company in this case, a review of your PPSA registrations may uncover defects and errors that could compromise your statutory priorities. This decision demonstrates that such defects and errors in PPSA registrations can, if identified, be rectified if there has not been any disregard for the secured party's statutory obligations and helpfully, if the defects and errors are systemic across a large number of registrations, the registrations can be rectified all at once.
Conversely, the decision is a reminder to insolvency practitioners of the importance of examining registrations on the PPS Register.
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.
|Chambers Asia Pacific Awards 2016 Winner
Client Service Award
|Employer of Choice for Gender Equality