When will a court exercise its discretion to grant an extension of time for the registration of security interests on the Personal Property Securities Register (PPSR)? The NSW Supreme Court has given some guidance in In the matter of Accolade Wines Australia Limited and other companies  NSWSC 1023, specifically regarding:
- the registration of a security interest, under section 588FM of the Corporations Act 2001 (Cth); and
- the perfection of a purchase money security interest (PMSI) by registration, under section 293 of the Personal Property Securities Act 2009 (Cth) (PPSA).
Alleasing's failure to properly register its security interests
Alleasing Pty Limited and Alleasing Finance Pty Ltd (together, Alleasing) leased goods to various customers (Grantors) for terms longer than one year, making the leases PPS Leases.
Alleasing attempted to perfect its security interests by registration on the PPSR at or about the time the relevant leases took effect. It lodged two financing statements for each security interest, one stating that the interest was a PMSI, the other that it was not. However, all of the financing statements were registered against each Grantor's ABN, rather than their ACNs, making the registrations potentially defective.
Alleasing's failure to properly register its security interests within 20 business days after the relevant security agreements came into force meant that under section 588FL, if a Grantor became insolvent, the interests would vest in the Grantor, and Alleasing would lose the benefit of the security.
Further, because the PMSIs were not properly registered before the end of 15 business days after the Grantors obtained possession of the property, Alleasing would not enjoy the priority conferred by section 62(3)(b) of the PPSA.
Alleasing sought to perfect its security interests by lodging new financing statements on the PPSR, which referred to the Grantors' ACNs. The only problem was that Alleasing was out of time.
Alleasing therefore sought:
- an order under section 588FM of the Corporations Act fixing a time later than the end of 20 business days after the relevant security agreements, for the registration of the security interests; and
- an order under section 293(1)(a) of the PPSA extending the 15 business day period within which it was required to properly register the PMSIs.
Extending the registration under section 588FM Corporations of the Act
Under section 588FM, the Court has a discretion to extend the time for registration if the failure to register the collateral earlier was:
- accidental; or
- a result of inadvertence or some other sufficient cause; or
- not of such a nature as to prejudice the position of creditors or shareholders.
The Court may also extend the time for registration on other grounds where it is just and equitable to grant relief.
Justice Brereton found that Alleasing, which utilised a third-party service provider to effect the registrations, did not realise that the ACNs should be used, nor did it understand that, by using the ABNs, the registrations might be ineffective. Its failure was therefore a result of inadvertence. This enlivened the discretion to fix a later time under section 588FM of the Corporations Act.
Justice Brereton went on to find that the failure to register earlier was unlikely to prejudice the position of creditors or shareholders because:
- the prospects of any of the Grantors becoming insolvent was remote;
- Alleasing's security interests were confined to the specific collateral the subject of the leases;
- although some creditors had subsequently registered security interests, their priority would not be affected by an order fixing a later time; and
- it was unlikely that a creditor relying on a search of the register in extending credit to a Grantor would have been unaware of Alleasing's security interest, as financiers commonly search the PPSR across ABN, ACN and company name.
It was also noted that when a section 588FM application is made, a grantor company is a proper and necessary party and ought to be joined to the proceedings. Justice Brereton granted an extension, but also required that each of the Grantors be joined as defendants to the proceedings and be given the liberty to apply to vary or set aside the granted extension.
The section 293 PPSA extension
Section 293 of the PPSA is similar to section 588FM, in that the Court may extend the time for registration if it just and equitable to do so. In making such an order, the Court must consider whether there was an accident, inadvertence or some other sufficient cause, as well as prejudice to the position of any secured parties or creditors. However, section 293 of the PPSA also expressly requires the Court to consider whether any person has acted, or refrained from acting, in reliance on the original time period having ended.
Justice Brereton made this order too, having regard to the following factors:
- the PMSIs were registered within the prescribed period, albeit in a defective manner;
- the PMSIs were only in respect of the specific collateral to which the relevant leases related;
- an "all of the present and after-acquired property" (AllPAP) interest is always liable to be trumped, in respect of specific after-acquired collateral, by a PMSI in respect of that collateral;
- to the extent that an earlier AllPAP holder will be prejudiced, it is only by losing a windfall arising from inadvertence; and
- it was likely that a later AllPAP holder would have searched the PPSR across the Grantor's ABN, ACN and company name and would have had notice of Alleasing's PMSI when acquiring its security interest (and in any event, where the earlier PMSI was in respect of specific collateral, it was unlikely to be material to the decision to provide financial accommodation and take the AllPAP security).
The Court noted that where an application is made for an extension under section 293(1)(a) of the PPSA, any other secured party whose interest is liable to be postponed is a proper and necessary party and ought to be joined to the proceedings. Each of the secured parties holding an AllPAP security interest registered against the Grantors were joined as defendants and given the liberty to apply to vary or set aside the granted extension.
Key lesson: extensions can be granted, but…
Accolade is a very useful illustration of how a court will approach the task of exercising its discretion under sections 588FM and 293 where a financier can demonstrate its failure to register its security interests properly was attributable to inadvertence.
This doesn't mean, however, that merely demonstrating inadvertence will be enough. A crucial element in Justice Brereton's reasoning was the low risk of prejudice to shareholders', creditors', or AllPAP holders' positions. Alleasing acted swiftly, before any other factors ‒ such as insolvency ‒ were added to the factual mix. If it had not done so, and there had been a real risk of insolvency or a perceived risk on insolvency based on a balance sheet, the result may have been quite different.