Accolade Wines Australia Limited – extending the time for PPS registrations

Recent orders by the Supreme Court of New South Wales[1] concerned an application by a secured creditor for orders:

• pursuant to section 588FM of the Corporations Act 2001 (Cth) (Act) to extend the time for registration of security interests; and
• pursuant to section 293(1)(a) of the Personal Property Securities Act 2009 (PPSA) to extend the time for perfection, by registration, of those security interests.

Background

The Applicants failed to correctly register security interests for goods leased to Accolade Wines Australia Limited and others (31 companies in total, collectively, the Grantors).

The Applicants registered financing statements on the PPSR over the Grantors’ ABNs rather than the Grantors’ ACNs and so, were defective for the purposes of the PPSA because a search of the PPSR using the ACN failed to disclose the registrations.

The Applicants did not know of the requirement to register a security interest using an ACN.  When the defect in the registrations was discovered (more than 20 days after the security interests were created), the Applicants lodged further financing statements referring to the ACN and applied to the Court in this matter for an extension of time.

Considerations

The purpose of section 588FM of the Act is to relieve a secured party from the consequences of failing to register their security in time by allowing the Court to fix a “later time” for registration.

Inadvertence

In determining whether to fix a “later time” the Court will take into consideration any inadvertence which may occur if a failure to register is innocent and does not result from any disregard for a secured creditor’s obligations under the PPSA.

Previously Courts have held that inadvertence includes:

• where there was “a bona fide attempt to register the security interests;”[2] or
• where there is a “lack of legal understanding as to the requirements of a registration, and the implications of late registration.”[3]

Here, the Applicants lodged financing statements using a platform other than the PPSR portal which provided no alert as to the significance of the choice between registering by ABN or ACN.  The Applicants were not aware that it made any difference to the status of the security interest.

In attempting to register their security interests over the ABNs, the Court was satisfied that the Applicants intended to do whatever was necessary to perfect their interests by registration, having taken steps to register the (defective) registrations.

Prejudice

The Court will consider any prejudice to other secured creditors or shareholders when fixing a “later time” for registration. 

This is particularly relevant due to the effect of section 588FL(2) of the Act where a PPSA security interest vests in a grantor company (on its entry into external administration) if it is not registered within time.[4]

In Accolade Wines the Courts’ position was, at [18], that prejudice:

• is not necessarily established merely by showing that the dividend to unsecured creditors will be less if the security interest does not vest in the company; and
• may occur where competing interests have arisen where others have dealt with the company on the footing that the collateral was unencumbered.

The Applicants relied on the payment history for each Grantor to satisfy the Court that none of the Grantors were insolvent and the prospects of a critical event occurring within six months was remote.

Reliance

When seeking an order to extend time to fix a later time to register, the Court will consider any reliance by others on the PPSR as giving a true and accurate depiction of a grantor’s security interests.

Reliance may occur where a secured party takes an interest over property that includes a PMSI in the belief that there was no perfected PMSI that would rank ahead of it.  In Accolade Wines 13 security interests fell within this category, eight of which were in favour of sophisticated financiers.

The Applicants gave evidence which set out that:

• any reasonably prudent financier would have conducted PPSR searches over the ACN, ABN and name of the Grantor – the results of which would have identified the Applicants’ security interest; and
• notice of the PMSI in respect of specific collateral is unlikely to have been material to a financier’s decision to provide financial accommodation.

The Court’s position

The Court was satisfied that the failure to effect timely registrations was due to inadvertence under both section 588FM(2)(a)(i) of the Act and section 293(3)(a) of the PPSA such that the Court’s discretion to extend the time to register was enlivened.

Lavan Legal comment

This case provides further comfort to secured creditors who inadvertently fail to register their security interests in time.

As a fail safe, financiers should ensure that due diligence is completed by conducting PPSR searches over the ACN, ABN and individual or corporate name of a proposed Grantor given the Court’s commentary in this matter.