Category Archives: PPSA

COVID PPSA Update

On 23 June 2020, here in Melbourne, in the calm between the lockdowns (which seems like an eternity ago now) I delivered an update to lawyers on COVID implications for the operation of the PPSA to the Leo Cussens Institute via Zoom. A copy of the paper presented is attached at this link.

The key takeaways were:

  1. as a practitioner, know the basics: what is a security interest, why to register and how to register
  2. make sure that clients take steps to protect themselves from simple mistakes;
  3. in an environment where a pandemic of insolvency is a real risk, errors in dealing with the PPSA will be costlier than ever.

I suggested the minimum basics that a practitioner should know were:

  • The main impact of the PPSA is difficult times is in insolvency.  The first thing a liquidator, administrator or bankruptcy trustee will do when appointed is search the PPSR for relevant registrations.
  • In most appointments of liquidators or bankruptcy trustees, unsecured creditors will either receive nothing or very few cents in the dollar.  Therefore, if you propose to offer funds or goods to a person or entity on credit, considering security for the obligation should be the first thing at front of mind.
  • A first-ranking secured party can then generally choose whether to enforce their security and take the property or get priority of payment from the sale of the property.
  • To take security over personal property, clients will need two things:
  1. a security agreement that is well drafted:  usually within the terms of trade, or in a separate document; and
  2. to register that security on the PPSR.

Enjoy!

PPSA Update – February 2020 Paper

In February 2020 I delivered a now annual seminar providing an update on recent PPSA developments at the Leo Cussen Institute. The seminar covered three interesting recent cases:

Bluewaters Power 1 Pty Ltd v The Griffin Coal Mining Company Pty Ltd
[2019] WASC 438 (Bluewaters)

BMW Australia Finance Limited v @Civic Park Medical Centre Pty Ltd as trustee for @Civic Park Medical Centre Unit Trust [2019] FCA 999 (Civic Park)

In the matter of Beechworth Land Estates Pty Ltd (admins apptd) and Griffith Estates Pty Ltd (admins apptd); Cussen and of Beechworth Land Estates Pty Ltd v Douglas Estate Holdings Pty Ltd and Others [2019] NSWSC 1129 (Beechworth)

Topics covered in the seminar included:

  • the breadth of a “security interest”:  do step-in rights require registration on the PPSR?  The decision in Bluewaters;
  • PMSIs – traps where the debtor is the trustee of a trust:  extension of time to register in the decision in Civic Park;
  • Administrators’ Lien over interests in land and proceeds of its sale: the decision in Beechworth;
  • Inventory security:  issues of priority and vesting in relation to processing raw materials

A copy of the paper is attached at the following link:

PPSA – Recent Developments – the O’Keeffe and Psyche cases

I recently presented a paper to Leo Cussens during a half day PPSA conference on the topic recent developments in the PPSA.  A full copy of the paper can be found at this link: Leo Cussens – PPSA – 23.5.19

The PPSA is relatively new (for a law at least) and so the Courts are still working through the legislation as cases come before them.  Many recent cases consider relatively straight forward aspects of the legislation.

As such, they are not of great significance other than as a demonstration of principle.  In the matter of O’Keefe Heneghan Pty Ltd (in liq) & Ors (2018) NSWSC 1958 (O’Keefe) is one of those cases, considering the continuing super-priority of approved deposit taking institutions (ADI) (usually banks or non-bank financial institutions) under the Act.

One significant development has been repeated demonstration of the drastic consequences of failing to identify a grantor by its proper identification number, leading to a lot of decisions considering efforts to overcome such errors. The problem was identified to drastic effect for the secured creditor in OneSteel Manufacturing Pty Ltd (administrators appointed) (2017) NSWSC 21.

There has been a rash of subsequent cases grappling with the same issue from different angles, and the recent case of Psyche Holdings Pty Limited (2018) NSWSC 1254 (Psyche) is one of them.

In the matter of O’Keeffe Heneghan Pty Ltd (in liq) & Ors (2018) NSWSC 1958

Takeout:  An ADI has super priority over ADI Accounts under its control, even where it has failed to register its security interest, since it is able to perfect its security interest by control of the ADI account.  That follows since the account is held with it and is at all times the balance is under its direct control.  An ADI which has perfected by control is entitled to follow its security interest out of the account into the control of others without losing its priority.  Secured creditors who are not ADIs should be on notice  that their priority will virtually always be secondary when competing against an ADI which has perfected by control, even after registration of their secured interest.

In the matter of Psyche Holdings Pty Limited [2018] NSWSC 1254

Takeout:  It is very important to register a security interest in accordance with the requirements of the PPSA, particularly with regard to time limits and the form of application.  That is particularly so with regard to use of an ABN or ACN in appropriate cases.   If a security interest is not validly registered within time limits set by the PPSA, the secured party may lose priority or may lose the interest completely.  While the Court has a discretion to order an extension of time for registration, the ability of the Court to grant extensions is limited and uncertain.  Practitioners should not assume that an extension of time will be available on application to the court.

I also mentioned three other cases of some note.

G. Murch Nominees Pty Ltd v Paul David Annesley & Ors [2019] VSC 107: registration of baseless security interest by mortgagor after purchase of property from mortgagee:  steps taken to restrain further registrations and remove invalid registrations.

Rubis v Garrett as Trustee of the Andrew Garrett Family Trust Trading as Dynamic Commercial Workforce Solutions (No 2) [2018] FCA 2011 – Vexatious baseless registrations against 46 alleged grantors with whom registering party had no security relationship, including a Judge in separate proceedings. Whether Registrar had breached duty not to permit vexatious registrations to be registered, in circumstances where the Registrar knew vexatious history of lodging party.

Toll Energy and Marine Logistics Pty Ltd v Conlon Murphy Pty Ltd [2019] FCA 532: extension of time for registration of a PMSI under s588FM of the Corporations Act (not insolvent, no objections)

Stopping sham PPSR Registrations – again, and again

The PPSR is Ripe for abuse

One of the weaknesses of the Personal Property Security Register (PPSR) is that anyone can go online and lodge a registration for a few dollars in fees by claiming to hold a “security interest” in respect of the personal property of another, with very few immediate consequences.

The victim of the sham registration can suffer real prejudice:  searches of the register will show apparent security interests over the victim’s personal property.  The impression given can lead to delays in completing other transactions involving the giving of real security over the affected assets or other transactions involving them, whilst time and money is required to remove the registration.

Jurisdiction to Remove and Restrain Sham Registrations

In 2014 as Counsel for the plaintiff I appeared in Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd [2014] VSC 217 where the plaintiff obtained an interlocutory and then final injunction to restrain the repeated registration of a sham “security interest” on the PPSR on the basis that it was an abuse of process.    I published a blog post about the case here.

The case has since attracted some attention, being reported at (2014) 285 FLR 267.

It has now also been followed in Victoria as a precedent establishing the Court’s inherent jurisdiction to grant injunctive relief of the type and on certain other points, in National Australia Bank Ltd v Garrett [2016] FCA 714.

The facts in National are a great illustration of the ease of registration on the PPSR.

Mr Garrett had been a customer of the Bank through various entities he controlled in the wine industry.   It is apparent from reading the judgment that the relationship between bank and customer had deteriorated markedly over time.  It appears again from the judgment that Mr Garrett had been subject of at least one vexatious litigant order and there was a history of applications involving him and the bank.

A financing statement was registered by the “Trustee for The Andrew Garrett Family Trust No. 4” on 24 April 2016 on the PPSR claiming a security interest in respect of the property of NAB and Treasury Wine Estates Vintners Ltd.  The collateral was said to be “All present and after-acquired property – No exceptions”.

The basis of the registration appears to have been a purported charge of which NAB gained notice in these circumstances (at para 12 of the judgment):

The registration of the financing statement followed NAB’s receipt of an email from Mr Garrett on 24 April 2016 in which Mr Garrett stated that he intended to register a charge on the PPSR over NAB’s property. Attached to the 24 April 2016 email was a copy of a Security Deed (titled “Distributor License Purchase Vendor Finance Performance Security Deed”) which purported to be a charge granted by NAB in favour of OenoViva and Mr Garrett as trustee for the Andrew Garrett Family Trust ABN 78 761 760 976. The Security Deed relevantly stated that: “This Charge is registered pursuant to the undertaking as to loss costs and damage given by the Chargee in SCI-2004-127; Andrew Garrett Wines Resorts Pty Ltd & Anor v National Australia Bank Limited”. The Security Deed has not been signed or otherwise executed by NAB. It is a creation of Mr Garrett’s and built upon the misconceived foundation that an undertaking as to damages given in a prior proceeding could somehow give rise to a security interest; I will return to the undertaking later.

[emphasis added]

The Bank made application to remove the registration after Mr Garrett refused to remove it in response to an amendment demand, being the administrative process provided by section 178 of the PPSA.

Beach J followed and confirmed the broad finding of Robson J’s decision in Sandhurst to the effect that a security interest under the PPSA does not include an interest in property that is said to arise by operation of equity, including an equitable remedial  constructive trust or charge.  Accordingly it cannot be registered.  Specifically, Beach J found [see National at paragraphs 27 to 33]:

  1. A “security interest” under the PPSA is one that is provided for by a transaction where one is dealing with consensual arrangements.  A transaction therefore does not include a claim based on obtaining equitable relief from a court of equity, such as a remedial constructive trust or charge.
  2. In identifying the transaction one must look to the substance and not the form.
  3. Further, certain interests in personal property arising at law are specifically carved out of the definition of security interest by section 8(1)(c) of the PPSA.

Beach J also followed Robson J’s finding in relation to the Court’s inherent jurisdiction under s37 of the Supreme Court Act 1986 to restrain registration as an abuse of process. Robson J accepted that the circumstances were similar to those that existed in abuses of the caveat system, where the Court already had exercised its inherent jurisdiction to remove caveats legally placed but in an abusive manner [see Sandhurst paragraphs 108 to 118, National at  paragraph 50].

Procedural Points on Judicial Process under s182 of the PPSA

In Sandhurst it was unnecessary for the Court to consider the procedure under the PPSA for removing contested registrations.  In National Beach J gave some indications of procedural points that ought to be followed.

In order to remove the an erroneous registration an applicant gives an amendment demand to the secured party under s178(1) of the PPSA.  The demand can only be given where authorized under the section.  Making an amendment demand is authorized by the section where either all of the collateral referred to in the registration, or part of it, does not secure the claimed obligation.

Assuming the amendment demand  is refused, a judicial process established under s182 of the PPSA can be invoked  within 5 business days of giving the demand.  The process provides for a hearing to determine if the amendment demand is authorized.

Beach J made the following comments about that process:

  1. The Court should treat an application made to sustain a contested registration in a similar manner to the defence of a Caveat application;
  2. The onus is on the putative secured party (in this case Garrett) to satisfy the Court that its registration ought remain;
  3. Some caution needs to be exercised in comparing the procedures, since s182(4) of the Act requires the applicant (in this case the National) to discharge a legal onus to establish that the amendment demand that initiates the process is itself authorized under s178(1) by prima facie evidence.  So the applicant would need to satisfy the Court by prima facie evidence that part or some of the collateral did not secure the obligation claimed.  That requirement was met in this case.

Conclusions

Looking forward, I expect these sorts of applications to become quite common, owing to the ease of abuse.  it is probably unlikely that the process for lodging a registration on the PPSR will be changed much as it is intended to be an easy system to use.  It is a question of competing policy imperatives which will not be resolved without some thought by regulators and stakeholders.

 

 

A QUESTIONABLE PRACTICE: PPS vesting provisions on appointment do not extinguish a financier’s perfected interest in leased equipment on the PPSR.

I recently had a piece published in the ARITA Journal with the above, rather lengthy, title.

The topic is the extent to which a financier’s security interest is really affected by the vesting provision, section 267, in the PPSA.  There is a current practice of letters being dispatched to the holders of any unperfected security interests in leased equipment, claiming vesting of all interest in the collateral in issue, without regard to upstream financier’s interests. The fact is that there are good arguments that the financier’s interest is not affected, even if the owner of the equipment who has provided the lease may lose its interest because of vesting.

This article deals with such an example where the argument of the VA in that case was defeated by the citation of a Canadian case on point. The issue hasn’t been dealt with by the Courts in Australia yet so is topical, and is relevant to major banks and equipment fleet financiers who can be affected.

A link to a PDF copy appears below.

ARITA Journal March 2016 Mark McKillop