In recent times, there have been numerous individuals and businesses who have been affected by not properly registering their security interests on the Personal Property Securities Register (PPSR).
In August 2014, the Pozzebon family became one of the first cases where an investment by a superannuation fund has been caught out, as part of the Pozzebon (Trustee) v Australian Gaming and Entertainment Ltd [2014] FCA 1034 case.
Given the relatively insignificant cost of only $16 to register assets under the Personal Property Securities Act (PPSA) (excluding any legal fees required in the transaction), this was an expensive oversight for the Pozzebon family, resulting in a loss of $250,000 from their Superannuation Fund.
The Case
As trustees of their super fund in December 2013, the Pozzebon Family agreed to lend $250,000 to Australian Gaming and Entertainment Limited (AGEL), which was in the process of preparing to list on the ASX. A loan agreement was signed, security was granted in the form of a personal property security interest in all of AGEL’s assets, and the money was handed over. After this transaction took place, the Pozzebon family didn’t register this particular security interest on the PPSR.
On 9th May 2014, AGEL announced it wouldn’t be proceeding with the public offer. Several days following this decision, the Pozzebon family registered the security interest granted by AGEL in December 2013.
On 26th May 2014, AGEL appointed administrators, who later became liquidators. When the administrators were appointed, AGEL had $860,000 in cash reserves. The liquidator’s position was that the Pozzebons interest in those funds was extinguished when the administration commenced, due to the late registration of their super funds security interest.
Corporate security interests need to be registered within the relevant timeframe (20 business days), according to Section 588FL of the Act. Any security interests not registered within this timeframe are vulnerable if a company later becomes insolvent.
The Court Decision
Mr and Mrs Pozzebon approached the Federal Court to dispute the liquidators’ conclusion that their security interest had been extinguished as a result of their late registration of their super fund’s security interest. They argued that section 588FL only applies to interests that are perfected by registration “and by no other means”. They said that their security interest included a combination of registration, attachment and enforceability, and because of this, section 588FL did not apply to their particular situation.
The court ruled that that attachment and enforceability are not methods of perfection, and ruled that:
when s 588FL(2)(a)(ii) refers to “the security interest [being] perfected by registration, and by no other means” that section is distinguishing “registration” as a means of perfection from “possession” and/or “control”, [not] from “attachment” and/or enforceability”…
The only means by which the security interest was perfected in this case was by registration. It follows that, in the circumstances, the security interest is not valid and enforceable…
The Court dismissed the Pozzebons application, making the ruling that their security interest was not valid.
Why you should register your assets on the PPSR
If you provide finance, supply, lease, hire or loan assets to third parties, we strongly recommend you obtain appropriate advice and register your ‘security’ interest in the assets to protect your position. Failing to properly register may result in the loss of your assets in the event of insolvency, as was the case of the Pozzebons and their Superannuation Fund.
If you would like more advice on how SV Partners can assist you with matters in respect to the PPSA or PPSR, please contact one of our expert advisors on 1800 246 801.