Chapter 22
Registration and the PPS Register
- 22.1 Registration
- 22.2 20 business day registration window – Corporations Act 2001 (Cth) section 588FL
- 22.3 Financing statements
- 22.4 The PPS Register is a “red flag” only – there is no “title by registration”
- 22.5 Requesting copies of security agreements
- 22.6 Financing change statements
- 22.7 Removal of pre-registrations where no security interest was ultimately taken
- 22.8 Registration by class of collateral
- 22.9 Registration against proceeds
- 22.10 Periods of registration – seven (7) years, 25 years or an indefinite period
- 22.11 Registration is only effective from the time the register shows the interest – so “search, register, search”
- 22.12 Verification statements
- 22.13 Search results - establishes registration time and priority time
- 22.14 Registration of PMSIs
- 22.15 Pre-registration before security interests attach
- 22.16 Inventory PMSIs must be pre-registered
- 22.17 "Silent equipment PMSI" risk
- 22.18 Amendment demands and amendment notices – cleaning up a cluttered register
- 22.19 Defective registrations
- 22.20 Other defects in registrations – PMSIs and “seriously misleading” registrations
- 22.21 Consequences of defective registrations
- 22.22 Registration, searches and privacy
- 22.23 Prescribed information, and prohibited registrations – impounded motor vehicles, proceeds of crime, freezing orders
- 22.24 Registration details for trusts
- 22.25 Applications for extension of time
22.25 Applications for extension of time
The PPSA imposes various timeframes within which security interests must be registered, or within which other matters must be conducted. Examples include the registration of PMSIs within strict timeframes, and that a secured party must give a grantor a notice of intention to dispose of collateral upon enforcement under section 130.
Some (only) of these timeframes can be the subject of an application to court for extension, if it is just and equitable to do so in the circumstances1. There is a list of permissible extensions in section 293.
In deciding whether to grant the extension the court must consider the factors listed in section 293(3). These are (broadly):
(a) whether the need to extend time results from an accident or other sufficient cause;
(b) whether the extension would prejudice other secured parties or creditors; and
(c) whether any persons have acted in reliance on the relevant timeframe having ended.
For example, assume a secured party has searched the PPS Register and relied upon there being no equipment PMSIs registered within the required 15 business day timeframe by taking a security interest themselves after the 15 business day window for registration elapses. In these circumstances, it would seem difficult for an equipment PMSI secured party who did not register within the 15 business day window to apply for an extension of that timeframe. Another secured party has relied on searches of the PPS Register, and would be prejudiced by the application.
This was confirmed in IBM Global Financing Australia v Applied Business Technology Pty Ltd [2018] NSWSC 1984 (IBM Global) at paragraphs [32] to [34], and Toll Energy and Marine Logistics Pty Ltd v Conlon Murphy Pty Ltd [2019] FCA 532 (Toll Energy). These cases confirm that a fundamental consideration is whether any subsequent secured parties holding PPSR registrations against the grantor (whether these be ALLPAP security interests, or specific security interests) have relied on the fact of non-registration by the applicant secured parties who seek orders for extension of time under PPSA section 293. More on this below.
Importantly, not all timeframes can be extended. For example, section 293 does not permit an extension of
the timeframe to register inventory PMSIs. Inventory PMSIs must be registered either before supply (goods) or attachment (other inventory). There are good policy reasons for not permitting an extension of time for inventory PMSIs. This is because confusion would follow from having inventory that is subject to a PMSI supplied to a business and used up in manufacture or otherwise, before the PMSI was registered over the inventory.
An application under PPSA section 293 for an extension of time to register purchase money security interests (PMSIs) was considered in the important case of Re Accolade Wines Australia Ltd [2016] NSWSC 1023 (Accolade Wines).
In Accolade Wines, secured parties holding PMSI security interests (PPS leases over equipment) registered them against the ABNs of the grantor companies instead of the Australian company numbers (A.C.N.s), with the consequence that the registrations would likely be seriously misleading under section 164(1) on the grounds that section 153 and clause 1.3 of Schedule 1 of the PPS Regulations require registrations to be made against the A.C.N. of corporate (non-trust) grantors.
Given the security interests in question were PMSIs, this meant that there were two timeframes under the PPSA that required extension. First, the 20 business day timeframe for registration (which applies to all PPSA security interests) under Corporations Act section 588FL. Second, the collateral under the PMSIs being non-inventory, the requirement under section 62(3) that PMSI registrations be lodged on PPSR within 15 business days.
There is overlap and commonality between the two applications for extension of time, but there are also significant differences, as discussed below.
The secured parties applied to the court ex parte (more on this below) for orders under both Corporations Act section 588FM for extension of the 20 business day period to register security interests, and under PPSA section 293 for extension of the 15 business day period to register PMSI security interests pursuant to PPSA section 293.
The court cautioned at the outset that applications of this nature should not be conducted on an ex parte basis. At a minimum, the grantors should be joined given there may be circumstances where they wish, or are obliged, to argue against the orders sought (see paragraph [8] of the judgment).
Further, the court explained that the consequences of an order for extension of time under PPSA section 293 are to alter the priority of other security interests granted by the grantor, given the PMSI security interests the subject of the application would be afforded PMSI super priority where that priority otherwise would not exist. Accordingly, joinder of some or all affected secured parties is highly desirable if not necessary, given these consequences (see paragraphs [10], [11], [28] to [34] of the Accolade Wines judgment). The same considerations do not apply, or apply with less force, for applications under Corporations Act section 588FM alone, given the orders there do not affect the priority of the security interests in question, only whether the security interest will vest for want of perfection upon any administration or liquidation of the grantor (see paragraph [10] of the judgment).
Consideration was given specifically to ALLPAP security interests registered after the PMSIs in question, given the potential for alteration of their priority was greater than ALLPAP security registered before the PMSIs. This is because the PMSI collateral would not have existed at the time of prior ALLAP security interests were granted, and accordingly the potential for prejudice to existing ALLPAP security is low to nil (see paragraphs [28] to [31] of the judgment).
The court proceeded on the basis that inadvertence on the part of the secured party as to the requirements of the registration timeframes under both Corporations Act section 588FL, and PPSA section 293, is essentially the same. Inadvertence was found to exist on the facts, given the secured party was unaware of the timeframes in question. On the matter of inadvertence, this can include a general lack of awareness of the requirements to register, as well as a lack of knowledge of the specific priority consequences of not making a registration within the required timeframes - see Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 at paragraph [15].
The court in Accolade Wines proceeded on an ex parte basis very reluctantly, given the market practice of conducting “triple searches” when searching the PPSR, comprising PPSR searches against both A.C.N., ABN and company name, meant any prudent secured party searching PPSR should have discovered the registrations even though they were incorrectly made against the ABN, thereby reducing likely prejudice to other affected secured parties of the grantor (see paragraphs [32] to [37]).
The court, in granting orders under both Corporations Act section 588FM, and PPSA section 293, explained that, in relation to the orders for extension of time to register the PMSI security interests under PPSA section 293, ALLPAP security interest are always on risk of being “trumped” by later-granted PMSI security interests, and this is a risk and consequence inherent in the PPSA system and should not prevent orders for extension of time being made under section 293 (see paragraph [44]).
The court made the orders together with so-called “Joplin” or a “Guardian Securities” order, reserving liberty to affected secured parties or any administrator of liquidator appointed within six months, to apply to have the orders set aside. The ex parte nature of the application meant that such parties were not joined in the first place, requiring such an order. Further, the court ordered that, specifically in relation to the orders made under PPSA section 293 and their affect on the priority of other security interests granted by the grantor, that affected secured parties be informed of the orders and have leave to apply to set aside the orders should they be prejudiced by the orders.
It is clear from Accolade Wines and subsequent cases such as Toll Energy and Marine Logistics Pty Ltd v Conlon Murphy Pty Ltd [2019] FCA 532 (Toll Energy), that a fundamental consideration is whether any subsequent secured parties holding PPSR registrations against the grantor (whether these be ALLPAP security interests, or specific security interests) have relied on the fact of non-registration by the applicant secured parties who seek orders for extension of time under PPSA section 293. Put another way, did other secured parties search the PPSR register and rely on the fact that it was either clear, or did not include the security interests that are sought to be registered late by application under Corporations Act section 588FM and PPSA section 293? If so, then there is likely to be real prejudice to other secured parties from the making of orders under PPSA section 293, which is likely to point against the court granting extension of time orders - see Toll Energy at paragraphs [55] to [56].
How do applicants for extension of time under Corporations Act section 588FM and PPSA section 293, confront this matter of establishing whether other secured parties may have searched the PPSR register and relied on the fact that it was either clear, or did not include the security interests that are sought to be registered late by application for extensions of time to register under these sections?
Also relevant is the priority impact upon other security interests from the granting of orders under Corporations Act section 588FM and PPSA section 293 - would the orders affect the priority enjoyed by other security interests? This matter depends on various factors, including the amount of secured money owing, and the ability of the grantor to repay its secured debt, and other similar considerations - these matters were highlighted in IBM Global Financing Australia v Applied Business Technology Pty Ltd [2018] NSWSC 1984 (IBM Global) at paragraphs [32] to [34].
Is it permitted for applicants under Corporations Act section 588FM and PPSA section 293 to push these forensic exercises or onus to other secured parties in question, to establish whether their priority would be affected, or they have been misled by the failures to register? This matter arose squarely in IBM Global, where the court frowned upon the applicants seeking to push this forensic exercise over to other secured parties. To address this, the applicants wrote to all other registered secured parties, and sought information from them about their security interests pursuant to PPSA section 275, and put their responses into evidence - see paragraphs [32] to [24] of the judgment in IBM Global. In this way, the applicants were tasked by the court with the exercise of establishing, to the extent possible, the likely priority impacts on other registered security interests, and whether any reliance has been placed on the lack of registration on PPSR of the security interests now seeking to newly register albeit late.
Notes
1 PPSA section 293 (link)
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