Carpenter International: The vesting of security interests in the external administration of corporations

The recent Victorian Supreme Court decision in Carpenter International¹ concerned an application by the voluntary administrators of Carpenter International Pty Ltd (Carpenter) for directions as to the manner in which the assets of Carpenter which were subject to various Personal Property Securities Registrations (PPSR) security interests were to be applied.

The facts

Carpenter was involved in the live cattle business, and it purchased cattle through its nominated agents (Agents).  The Agents would usually purchase the cattle on Carpenter’s behalf, and then deliver them to Carpenter to be sold in the export market.

Administrators were appointed to Carpenter on 24 March 2015.

The Agents asserted security interests in cattle held by Carpenter.

The administrators previously applied for and received orders from the Court permitting them to sell the cattle, pending the Agent’s potential security interests in the proceeds of sale being determined.

The issues before the Court in this application were, whether:

• cattle sold by Carpenter was subject to the security interests of the Agents under various agreements with Carpenter, and relatedly whether the administrator was entitled to treat the proceeds of sale as being solely the property of Carpenter as a result of the security interests vesting in the administrator pursuant to section 267 of the Personal Properties Securities Act 2009 (Cth) (PPSA) and section 588FL of the Corporations Act 2001 (Cth) (Act); and
• the administrators were entitled to a lien over the proceeds of sale from the cattle for their fees in the administration.

The decision

In relation to the issues raised with respect to the security interests, the Court found (among other things):

• The time (not just the date) at which a security interest is registered and an appointment is effected is relevant to determine whether a security interest vests in the company pursuant to section 267 of the PPSA.
• The assignment of a security interest does not create a new 20 business day period within which to register the security interest under 588FL of the Act.  That is to say, the relevant time for ascertaining whether a security interest that has been assigned is registered or not, is the date of the agreement, not the date of the assignment.
• If a party has entered into an arrangement and that arrangement may result in a security interest being created in the future (ie a contingent security interest) that party can and should register its contingent security interest on the PPSR, or run the risk of being caught by section 588FL of the Act.
• That the security interests of the each of the Agents vested in Carpenter immediately prior to it entering administration, and accordingly, the administrators of Carpenter were permitted to treat the proceeds of sale from the cattle as the company’s property.

The issue of the equitable lien was not resolved as there was an unresolved issue with respect to a party who claimed a security interest.  In terms of the administrators’ fees, Cameron J stated:

In my opinion, responsible and prudent efforts have been made to ensure the wellbeing of the cattle in question.

I do not consider that, on the evidence, the actions of the administrators have been anything other than responsible, and they have certainly not been profligate. It would be a grave situation had they not properly and diligently attended to the health and welfare of the cattle, necessarily incurring expense to do so.

Further, the administrators were naturally charged with the task of assessing the ownership of the cattle and to make such inquiries and conduct such investigations as was necessary to determine those questions. There is no doubt that such actions, such as caring for, and looking after the cattle and incurring expense to ascertain their true ownership were necessary. These tasks inevitably, in my opinion, take longer than most parties would wish. However, this, in itself, does not make their actions unreasonable.  Further, the sale of cattle necessarily involved costs which were, in my opinion, reasonably and responsibly incurred.

Lavan Legal comment

The decision is a timely reminder for all parties to ensure that they register their interests on the PPSR in a timely manner to avoid difficulties in their enforceability.  Had the Agents in this case correctly registered their security interests, those interests would not have vested in Carpenter with the effect that their interests were effectively lost.

Insolvency practitioners should ensure that they accurately record the date and time upon which they are appointed.  The PPSR records the date and time that a security interest is registered, and accordingly, the issue of the time of the appointment may become relevant in determining whether or not a security interest vests in the company or not.