It remains the case that some three years into the operation of the Personal Property Securities Act 2009 (Cth) (PPSA), many people and organisations are still unsure of the mechanics of its operation.
One of the most common areas in which advice is sought is the timing for registration of security interests under the PPSA. Unfortunately, the requests for advice in this area usually come after the appointment of an administrator or liquidator to a grantor company.
Section 588FL the Corporations Act 2001 (Cth) (Corporations Act) requires secured parties to register their security interest before the latest of the following:
If a secured party (under an Australian security agreement) fails to register within 20 business days, it exposes itself to a risk that its security interest will vest in the grantor company if the grantor company enters liquidation or voluntary administration in the subsequent six month period.
The 20 business day rule (and the 56 day rule in respect of foreign security agreements) only applies where a company enters liquidation or voluntary administration in the six months after the registration. That is, if a secured party registers outside 20 business days, and the grantor company does not suffer a relevant insolvency event in the six months after registration, then the late registration will not result in the security interest vesting in the grantor company upon the happening of an insolvency event.
While the above applies equally to Purchase Money Securities Interests (PMSIs), there are additional timing requirements in relation to PMSIs which must be met in order to obtain the super priority normally associated with PMSIs.
A guide to registration times
The below table sets out the timing for registration of security interests:
Type of security interest
When to register
PMSI (inventory – see section 10 of the PPSA)
Before possession of the inventory passes (usually this means before delivery of the goods to the grantor).
Within 15 business days of the commencement of the security agreement, obtaining possession of the collateral, or attachment.
All other security interests
Within 20 business days of the commencement of the security agreement.
If a security interest has been registered outside of the 20 business days, we recommend making an application to Court under section 588FM of the Corporations Act to extend the time for registration. Section 588FM(2) provides that the court may fix a later registration time (ie a time outside of the 20 business days) where it is satisfied that:
Lavan Legal comment
The consequences of registering a security interest outside of the relevant time periods in section 588FL are too extreme to ignore.
We recommend that parties proceed with care when preparing and reviewing agreements which contain or may contain security interests which require registration.
If for whatever reason an agreement is not registered within the relevant time period, serious consideration should be given to an application to extend the time for registration under section 588FM of the Corporations Act. A failure to do so can result in a security interest vesting in an insolvent grantor company.