A 2014 decision from the Federal Court is a timely reminder to register security interests on time. In this case, the creditor (the Applicant) advanced $250,000 to the debtor (the Respondent). A security agreement was made that resulted in the Applicant having a security interest over the Respondent’s personal property. However, due to the creditor’s late registration of the interest, their application failed and the interest remained vested in the debtor.
The timeframe under section 588FL of the Corporations Act stipulates that a security interest must be registered on the Personal Property Securities Register (PPSR) within 20 days of the charge that created the interest coming into effect.
The creditor registered the interest more than 4 months after it was created. Shortly after the registration, the debtor went into voluntary administration.
When the creditor tried to put into effect its security interest against the debtor’s property, the debtor claimed that the property interest remained vested with it under s588FL(2) of the Corporations Act.
Section 588FL of the Corporations Act provides for the vesting of PPSA security interests if the collateral is not registered within the stipulated time frame. Generally, the security interest vests in the Company that granted it if:
- At the critical time the security interest was enforceable against third parties; and
- The interest is perfected only by registration; and
- The registration of the collateral is after the latest of:
- 6 months before the critical time; or
- 20 days after the security agreement granting the interest came into force. Note: only factors relevant to the current case have been mentioned.
This section refers to a “critical time” which is defined in subsection (7) as (in relation to a Company) the day the winding up of a company has commenced.
The creditor’s claim was that s588FL did not apply as their security interest was perfected not only by registration but also by the enforceability against third parties and attachment to the collateral.
Justice Collier rejected the creditor’s argument that attachment and enforceability constitute “other means” of perfection but are in fact necessary requirements for perfection to occur. In summary, enforceability and attachment are required to occur first, and then the interest may be perfected by other means, (i.e. registration, possession, control, etc.). As such the Court found in favour of the debtor and the security interest remained vested in the company that granted it in the first instance.
Pozzebon (Trustee) v Australian Gaming and Entertainment Ltd, in the matter of Australian Gaming and Entertainment Ltd (in liq)  FCA 1034
This case highlights the importance of registering security interests within the stipulated time frame. If you need help registering a security interest that has been granted to you or you need advice regarding a security interest that has been registered late, contact our Dispute Resolution, Insolvency & Reconstruction team on:
P 02 6215 9100 or E firstname.lastname@example.org OR email@example.com