PPSR registration – Route [1]66 now closed

The New South Wales Supreme Court has found that a secured party cannot rely on its own mistake when registering on the Personal Property Securities Register (PPSR) to claim that the defective registration “temporarily perfects” its security interest.

The facts

In HP Financial Services (Australia) Pty Ltd v Production Printing (Aust) Pty Ltd (in liq) [2017] NSWSC 505 a secured party incorrectly registered against a grantor’s ABN rather than its ACN as required by section 153(1) and the Personal Property Securities Regulations. The grantor was subsequently placed in voluntary administration. The secured party argued that its security interest (being its interest as lessor under a PPS lease of $4 million worth of printing equipment) was temporarily perfected by its defective registration prior to, and on, the day on which the administrators were appointed by virtue of section 166 of the Personal Property Securities Act 2009 (Cth) (PPSA).

Section 166 and temporary perfection

In summary, section 166 of the PPSA provides as follows:

• if a defect in a registration arises at a particular time (the defect time):
  • under section 165(a) or (d); or
  • under section 165(b), other than a defect resulting from a change of the grantor; and
• the defect does not arise only because of an irregularity, omission or error in a financing statement or a financing change statement,

then despite sections 164 and 165, the defect does not make the registration ineffective for the period starting at the defect time and ending at the earliest of the following times:

• the end time for the registration (as registered immediately before the defect time);
• the end of the month that is 60 months after the defect time;
• the end of 5 business days after the day the secured party acquires actual or constructive knowledge of the defect,

but the registration becomes ineffective under sections 164 and 165 because of the defect immediately after the earliest of those times, unless, at or before that time, the registration is amended to correct the defect.

The court’s findings

The secured party’s argument was rejected by the court. The court observed that:

• the defect in the secured party’s registration arose only because of the irregularity, omission or error in the financing statement made by the secured party (so section 166(1)(b) was not satisfied);
• the consequential inability to identify the secured party’s registration by a search of the PPSR by reference only to the grantor’s correct identifying details (i.e. its ACN) arose only because of the irregularity, omission or error in the secured party’s registration and therefore section 166 did not apply;
• its interpretation of section 166 was consistent with paragraph 5.75 of the Replacement Explanatory Memorandum to the Personal Property Securities Bill which indicated that section 166 is not intended to give secured parties the opportunity to correct defects of their own creation, but to provide a grace period for secured parties to correct registrations where events beyond their control have led to a previously effective registration becoming defective;
• the interpretation of section 166 put forward by the secured party “would lead to the perverse result that, so long as a financing statement is defective in a relevant respect from the moment it is registered, the registration of a security interest will be preserved by temporary perfection, including in circumstances where a person searching the register by reference to a grantor’s ACN would not, for example, be able to identify the registration of that interest” [at 33].

The judgment in the Production Printing case follows on from the recent decision in Re OneSteel Manufacturing Pty Ltd (administrators appointed)¹ which found that:

• a registration against a corporate grantor’s ABN rather than its ACN will be ineffective under sections 164(1)(b) and 165(b) of the PPSA;²
• such a registration will also be “seriously misleading”, and therefore ineffective, for the purposes of section 164(1)(a) of the PPSA;
• a court cannot make an order under section 588FM of the Corporations Act 2001 (Cth) to extend time for registration for the purposes of section 588FL(2)(b)(iv) where the relevant security interest was not perfected at the time administrators were appointed to the insolvent company; and
•  the vesting of an unperfected security interest under section 267(2) of the PPSA is not an acquisition of property otherwise than on just terms for the purposes of section 252B of the PPSA and paragraph 51(xxxi) of the Constitution.

The road ahead

Many insolvency practitioners have been faced with the rather tenuous argument that section 166 of the PPSA saves a secured creditor from the effects of its own defective registration. Production Printing is a common sense interpretation of the relevant provisions which confirms that this argument is indeed misconceived.

¹[2017] NSWSC 21

²The grantor in the OneSteel case had an ACN and it was not the trustee of a trust or the responsible entity of a registered scheme; Part 1 of Schedule 1 to the Personal Property Securities Regulations.