As most readers would know, failing to register a security interest under the Personal Properties Securities Act 2009(Cth) can have significant consequences. A recent decision of the New South Wales Supreme Court has looked at one way of avoiding those consequences: extending the time for registration.
In Re Southern Engineering Services Pty Ltd (in liq)  NSWSC 1882, the court considered the application of section 588M of theCorporations Act 2001 (Cth). As explained in an earlier blog post, that section allows for the registration time under the PPSA to be extended if the failure to register the interest earlier:
- was accidental or due to inadvertence; or
- did not prejudice the position of creditors or shareholders.
In this case, Southern Engineering Services Pty Ltd leased certain goods from a lessor. Southern Engineering went into liquidation. The lessor then sought an injunction to prevent the liquidators from selling the leased goods.
The court granted the injunction on the basis that:
- the lessor had sufficiently shown that its failure to register under the PPSA was due to inadvertence;
- damages would be an inadequate remedy; and
- convenience favoured an injunction.
In deciding the last point, the court observed that a 'fire sale' of the goods upon liquidation would generate a diminished return compared to the normal sale process. The court also noted that there would be difficulties in separating the lessor's goods from other goods the liquidators might sell.
Importantly, the court also held that 'the mere fact of prejudice to unsecured creditors, including employees, is of slight significance on an application such as this, the more important consideration being whether it can be shown that the absence of the registration from the register has resulted in others acting to their detriment'.