The Pozzebons’ bad day

Articles, Restructuring + Insolvency

Last Wednesday, Mr and Mrs Pozzebon had a bad day. They learnt that their failure to submit an eight dollar online form cost their super fund $250,000 – plus costs.

It was a very bad day.

 

Background

As a result of a lifetime’s arduous toil, Mr and Mrs Pozzebon had amassed a sizeable sum in their self-managed super fund.

In December 2013, in their capacities as trustees of their super fund, they agreed to lend $250,000 to a Perth company, Australian Gaming and Entertainment Limited (AGEL), which was gearing up to list on the ASX. On Christmas Eve, 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.

 

Disaster!

Suddenly, on 9 May 2014, AGEL announced that it would no longer be proceeding with its planned public float.  A few days later, the Pozzebons hurriedly registered the security interest that AGEL had granted back on Christmas Eve.

A week later, disaster struck.

On 26 May, AGEL appointed administrators who, on 1 July 2014, became its liquidators. At the time, AGEL had $860,000 cash at bank – more than enough to repay the Pozzebons’ loan. Alarmingly, however, the liquidators took the position that Pozzebons’ interest in those funds had been extinguished upon the commencement of the administration, by virtue of section 588FL of the Act.

 

Section 588FL

Section 588FL is headed “Vesting of PPSA security interests if collateral not registered within time”.  It renders corporate security interests vulnerable to extinguishment if they are not registered within the timeframe prescribed by the Act, and the company later becomes insolvent.

The relevant timeframe is 20 business days (section 588FL(2)(b)(ii)). Section 588FL basically says that if you register your security interest outside this timeframe, and within the following six months the company appoints an administrator, executes a DOCA, or is wound up, the security interest for good (section 588FL(4)).

 

The dispute

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 seized on the fact that, on its own wording, section 588FL only applies to interests that are perfected by registration “and by no other means”. They said that their security interest was perfected by a heady cocktail of registration and attachment and enforceability. Consequently, they said, section 588FL did not apply.

 

The decision

In Pozzebon (Trustee) v Australian Gaming and Entertainment Ltd [2014] FCA 1034, the Federal Court made fairly short work of the Pozzebons’ argument.

The court pointed out that attachment and enforceability are not methods of perfection, and observed 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 court also noted that the Pozzebons had been unable to advance any example of perfection being achieved by registration alone (without attachment and enforceability). The court concluded:

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…

In light of that conclusion, the Pozzebons’ attempt to salvage their security interest was unsuccessful. As you would expect, being the unsuccessful party, they were ordered to pay the liquidator’s costs.

Take-home points

Register on time or pay the price. If you are relying on lawyers or other people to look after it all for you, make sure you are dealing with people who know what they are doing.

If it has suddenly dawned on you that you have already missed a registration deadline, give ERA Legal a call. We can approach the court for a section 588FM remedial order extending the deadline – even if it has already passed. We have done this before, successfully, and we know exactly what to do and how best to present your case in order to:

  • optimise your prospects of success, and
  • minimise your costs.

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