10 Dec Register your Security on Time!
As you may know the Personal Property Securities Act 2009 (“the PPS Act”), which established the Personal Property Security Register (“PPSR”), came into effect on 30 January 2012.
What is surprising is that some seven years later, companies and individuals are still failing to validly register their PPSR interest, resulting in the loss of hundreds of thousands, if not millions of dollars in security.
The purpose of the PPSR was to provide a single searchable register, on which you may register a notice that you have rights over personal property which secured a debt or obligation that someone owes to you.
But what happens when you fail to validly register your security?
In a developing matter based out of Brisbane, one particular creditor of the Company may feel the full burn for failing to validly register their security interests prior to the appointment of a Voluntary Administrator.
A lease agreement is a prime example of a security interest. For a lease of goods to be classified as a security interest, it must meet certain criteria as detailed in section 13 of the PPS Act; a lease of goods and be for a term of two or more years.
In the Brisbane matter, the Liquidator was provided an unsigned lease agreement, detailing the monthly amount payable and the term of the agreement, being four years.
It does not matter if the lease is unsigned. Section 20(2) of the PPS Act, states that “a security agreement covers collateral in accordance with this subsection if the security agreement is…adopted or accepted by the grantor by act, or omission, that reasonably appears to be done with the intention of adopting or accepting the writing and the writing evidences a description of the particular collateral.”
Prior to the appointment of Voluntary Administrators and subsequent Liquidators, the Company accepted the agreement by taking possession of and using the assets subject to the security. Further, the Administrators continued to use the assets in question.
Timing of Registration Is Everything
Whilst the creditor and Company in question had agreed to enter into a lease agreement, although unsigned, timing of the registration played a crucial role in determining the validity of the securities.
If a secured party fails to register their security interest within 20 business days of entering into the agreement but within the 6 month period of the appointment of an Administrator or Liquidator, the collateral (the assets) will vest with the grantor (the Company in Administration / Liquidation), who has granted the security interest.
In this case, the securities were registered within the 6 months prior to the appointment of the Voluntary Administrator, and the assets therefore vest with the Company in Liquidation.
The secured party took possession of the assets during the transition period from Voluntary Administration to Liquidation. It was subsequently learned the secured party had failed to validly register their security interest, and as such, had no right to take possession of the assets.
Section 123 of the PPS Act states the seizure of goods does not perfect a security interest and the assets must therefore be returned to the Company.
The assets in question are valued in the hundreds of thousands of dollars, and the Liquidator is currently in negotiation with the creditor, to attempt to reach a commercial outcome.
Lesson to be learnt, register your securities on time.