Regular readers will recall that the PPSA introduced concepts of 'attachment' and 'perfection'.
The interest of a creditor in personal property 'attaches' to the property when the relevant financing transaction occurs.
However, the security interest remains 'unperfected' until the person claiming the security interest takes further steps to perfect their interest.
BackgroundMr and Mrs Pozzebon are the joint trustees of the Pozzebon Family Superannuation Fund. They loaned $250,000 to Australian Gaming and Entertainment Ltd (AGE) on 24 December 2013.
The money was paid over and a security agreement was executed that day.
As a result, the security interest 'attached' to the relevant personal property on that day.
However, the security interest was not registered on the Personal Property Securities Register ("PPSR") until 19 May 2014.
Seven days later, on 26 May 2014 (five months after attachment of the security interest) AGE was placed into voluntary administration. It was placed into liquidation on 1 July 2014.
At the time of liquidation, AGE had $860,000 standing to its credit in a bank account. Nearly $350,000 (including accrued interest and costs) of this fund was the personal property over which the parties were fighting.
Section 588FL of the Corporations Act 2001 (Cth) (Corporations Act) relevantly provides that if a company is placed into administration or liquidation (insolvency event) and a security interest may be perfected by registration (and by no other means), then if registration did not occur within twenty business days of attachment and an insolvency event occurs within six months thereof, the interest in the personal property vests in the company in administration or liquidation.
Similarly to the case about which I posted yesterday, unless the lender in this case could demonstrate 'perfection' of its security interest by means other than registration, the personal property sought to be secured would vest in the liquidator because it was not 'perfected' in time.
The security interest holder was unable to show that it had possession or control of the relevant collateral. It was also unable to prove temporary perfection of its security interest.
Collier J noted at paragraph 35 that:
The substance of the applicant’s case is that because the relevant security interest was perfected by attachment and enforceability and effective registration, the circumstances have taken the method of perfection outside the parameters of s 588FL(2)(a)(ii). They support this contention by submitting that attachment and enforceability are not always necessary for perfection, and that an example of this is in respect of temporary perfection of which attachment and enforceability are not necessarily elements.Therefore, it argued that its security interest prevailed over the interest of the liquidator.
The Federal Court rejected the security interest holder's statutory construction, and decided that although the applicant's security interest attached, it was not perfected within twenty business days of that attachment.
As it was created within six months prior to the administration of AGE, the security interest was unenforceable against the liquidator and the personal property vested in the insolvent estate.
ConclusionThe decision confirms how important it is for holders of security interests to take all steps necessary to ensure that they perfect that security interest within the limited time frames provided for in the legislation.
W G Stark
Hayden Starke Chambers