The Personal Properties and Securities Act (“PPSA”) and Personal Property and Securities Register (“PPSR”) have been in operation for some time. The requirement in 588FL(2)(b)(ii) of the Corporations Act (“the Act”) for a secured party to perfect (usually by registration) its interest within 20 business days  of such an interest arising is a requirement most of those in business  are aware of.  Failure to do so can have dire consequences for a secured creditor in an insolvency context.

While a secured creditor is not prohibited from registering its security interest on the PPSR after the expiry of the 20 business day time limit, if it does so and within 6 months following registration of the security interest the grantor company is placed into liquidation, section 588FL(4) of the Act provides that the otherwise valid security interest vests in the company and the security is effectively lost.

In Re: Enviropallets (NSW) Pty. Limited [2013] QSC 220 a company found itself in breach of the requirements having lent approximately $2.7M of which prompted  an application under section 588FM to rectify what otherwise would have been an extremely costly mistake.

Facts

The secured creditor, Taurus Trade Finance Pty. Limited (“Taurus”) entered into a debtor finance facility with Enviropallets (NSW) Pty. Limited (“Enviropallets”) on about 20 September 2012.  Due to an inadvertent administrative error following the death of one of the directors of Enviropallets, the department of Taurus responsible for registering the security interests arising from the Debtor Finance Facility did not do so until 17 January 2013, around four months later.

On 15 May 2013 an administrator was appointed to Enviropallets which was subsequently placed into liquidation on 20 June 2013.  The registration of the security interests on 17 January 2013 was therefore outside of the 20 day registration time limit and well within the period 6 months prior to the appointment of administrators. In other words, Taurus’ security had vested in the company.

Realising its mistake, Taurus promptly brought an application under section 588FM of the Act for orders fixing a later time for the registration of its security interest than the 20 days following its security agreement coming into force prescribed by section 588FL(2)(b), specifically 17 January 2013, the date the security interest was in fact registered (“the Extension Application”).

The first hurdle for Taurus was that without the leave of the Court under section 471B of the Act, no proceeding could be commenced against Enviropallets, being a company in liquidation.

In deciding to allow Taurus to proceed with its Extension Application, His Honour Justice Philippides of the Supreme Court of Queensland noted that: –

1. Taurus’ claim was for a significant amount which remained secured;
2. The only security interest granted by Enviropallets post 17 January 2013 was to a vehicle financier over specific collateral;
3. the extension of the timeframe for registration would have no effect on the priority of the security interests already registered on the PPSR;
4. there would be no substantive prejudice to the creditors of Enviropallets if leave were granted; and
5. it was not possible for Taurus to proceed with its Extension Application by way of lodging a Proof of Debt.

In those circumstances it was appropriate to allow Taurus to bring its application under section 588FM.

His Honour then considered the substantive Extension Application.  His Honour found that Taurus’ registrations department had, due to inadvertence, failed to cause the security interests arising from the Debtor Finance Facility to be registered in time. Pursuant to section 588FM(2)(a)(i) of the Act, if the registration has failed to occur due to “inadvertence”, the Court may order that time be extended.

As to the exercise of the discretion to extend time, in concluding that time should be extended, His Honour Justice Philippides noted the following, amongst other things: –

1. Taurus would not have advanced the funds without a security interest;
2. Enviropallets agreed to provide a security interest and had executed the security documents;
3. There was no evidence of Enviropallets insolvency at the time the security documents were provided;
4. The application was brought promptly following the appointment of administrators to Enviropallets;
5. Reasonable consideration was given for the security;
6. There was no evidence that another creditor extended credit to Enviropallets during the period that the security interest should have been registered (i.e. September to January) save for some vehicle financiers with security over specific collateral (vehicles);
7. The orders sought did not affect the priority of security interests of other creditors already registered on the PPSR avoiding any prejudice to other secured creditors; and
8. Taurus’ solicitors had written to the liquidators of Enviropallets and informed them of Taurus’ proposal to bring the extension application. As a result, the creditors were given ample notice of what Taurus proposed to do and no creditors made any attempt to be heard in the proceedings to ventilate any prejudice they may have suffered.

Commentary

It may be thought that in this case Taurus was very fortunate. It’s inadvertence in failing to register its security interest in time had the automatic consequence that its interest was, effectively, void.  On this occasion, it appears that the timeliness of its application under section 588FM extending the time for the registration of the security interests and the lack of any prejudice to other secured creditors if the extension was granted, in conjunction with other matters, tipped the scales in favour of making the orders that Taurus needed.

That being said, had one or more secured creditors relied on the lack of evidence of Taurus’ security interests on the PPSR in determining to give credit to Enviropallets before the actual registration of Taurus’ security interests on 17 January 2013, or had any unsecured creditor objected, the result might well have been different.

The case serves as a timely reminder that while it is possible to fix a late registration, there are restrictions on the court granting the relief. It is extremely important to comply with the requirement for timely registration but if a mistake is made, a creditor must move quickly to fix the mistake.