Key Points:

This case provides some clarification of matters relating to registration of retention of title clauses for secured creditors dealing with grantors

The registration of security interests on the Personal Property Securities Register (PPSR) is a critical, yet unresolved, issue in the context of the appointment of administrators and liquidators, and also for parties to sale transactions.

  1. Whether the retention of title clause is created, for the purposes of the Personal Property Securities Act 2009 (Cth) (PPSA)?
  2. Will a security interest that is perfected on the day that administrators are appointed vest pursuant to section 267 of the PPSA?
  3. Did the security interest vest pursuant to section 588FL of the Corporations Act 2001 (Cth)?
  4. When will an extension of time be granted under section 588FM of the Corporations Act?

Clayton Utz acted for the voluntary administrators.

The first question: was a security interest created?

Voluntary administrators were appointed to Carpenter on 24 March 2015. At that time, Carpenter held over 6,000 cattle supplied by cattle vendors through the livestock agents, which Carpenter had not paid for at the time the Administrators were appointed.

The livestock agents acted as del credere agents and paid the cattle vendors the amount which they expected to receive from Carpenter (less commission) before Carpenter had actually paid them (as agents). For some transactions, the Carpenter terms and conditions were signed, which contained a clause excluding any terms of the vendor or its agent. For other transactions, only the livestock agent's terms were signed which included a retention of title clause (ie. title was to remain with the agent until Carpenter had paid the purchase price). In other cases, both sets of terms were signed. The Court had to determine which terms and conditions applied.

As a matter of construction and having regard to the circumstances of the transactions, many of the livestock agents' terms were held to apply, including the critical retention of title clause which was found to constitute a security interest under the PPSA.

However, one particular agent never printed the back page of its terms (which included the retention of title clause). The agent argued that the missing terms were incorporated or otherwise accepted by Carpenter. The agent was found unable to rely on any missing terms (including retention of title clauses) as there was no evidence: (a) of any representation of the retention of title; or (b) that Carpenter was given notice of such terms.

The second question: will a security interest that is perfected on the same day that administrators are appointed vest pursuant to section 267 of the PPSA?

The Court found that a security interest that is perfected on the same day of administrators" appointment, but before the time the administrators are actually appointed, will not vest in the grantor company under section 267 of the PPSA.

One agent registered a security interest on the PPSR a few hours prior to the appointment of the administrators and on the same day. Justice Cameron found that as the agent registered its security interest before the administrators were appointed (albeit on the same day), section 267 did not apply.

Justice Cameron found that section 267 of the PPSA refers to the time when the administrators are appointed, rather than the day. As a result, a security interest will vest under section 267(2) if it is unperfected at the time when the administrators are appointed.

The third question: did the security interest vest pursuant to s 588FL of the Corporations Act?

Section 588FL of the Corporations Act provides that if the security interest is enforceable against third parties and perfected solely by registration, and the registration occurred after the latest of:

  • six months before administrators were appointed; or
  • the time that is the end of 20 business days after the security agreement came into force, or the time that administrators were appointed, whichever time is earlier,

then the security interest vests in the company immediately before the appointment of administrators.

Justice Cameron found that the 20 day period in section 588FL may begin to run, in some cases, before attachment has occurred and before the security interest is enforceable against the grantor.

This highlights the need for secured parties to register their security interests as soon as the security agreement is entered into. There will be no penalty for doing so as long as the person registering believes on reasonable grounds that they will become a secured party (section 151(1) of the PPSA).

The fourth question: when will an extension of time be granted under section 588FM?

One agent applied under section 588FM of the Corporations Act for an extension of time to register its security interest.

Section 588FM(1) provides that a company may apply to the Court for an order fixing a later time to register a security interest under section 588FL.

This section has been applied liberally. Justice Cameron referred to Justice Brereton's explanation of the meaning of "inadvertence" in Re Appleyard Capital Pty Ltd; 123 Sweden AB v Appleyard Capital Pty Ltd (2014) 101 ACSR 629,which "includes failure to advert to or understand the requirement for registration within the specified period, and innocent error in the sense of failure to register through ignorance of the legal requirement to do so, or of the consequence of not doing so."

In this instance, Justice Cameron considered that the "real" reason the agent failed to register in time was a mistaken belief that Carpenter could and would pay on time, and this did not amount to "inadvertence" within the meaning of section 588FM.

Interestingly, Justice Cameron noted that if, even before learning of Carpenter's financial difficulties, the agent had planned to register within 20 days of the date the agent considered that the contract had been formed, Justice Cameron would have been satisfied that the failure to register in time was due to inadvertence.

The failure to register in time did not amount to an accident or "some other sufficient cause within the meaning of section 588FM(2)(i)". The security interest was registered out of time, and it vested in Carpenter pursuant to section 588FL.

Key lessons

This case reiterates the importance of registering security interests created by retention of title clause as soon as the contract is formed.

This case provides some clarification of matters relating to registration of retention of title clauses for secured creditors dealing with grantors:

  • A security interest that is perfected on the day that administrators are appointed, but before the time that administrators are appointed, will not vest pursuant to section 267 of the PPSA (but may vest under s 588FL of the Corporations Act).
  • The time begins to run under section 588FM from the time that the agreement came into force, not from the time the security interest attaches or otherwise becomes enforceable. In particular, it is advisable for del credere agents to either (a) require their principal to register a financing statement; or (b) register their own financing statement to perfect the relevant security interest (even if the del credere agent does not have the benefit of the security interest at the time of the registration).
  • A mistaken belief that the grantor could and would pay on time does not constitute inadvertence within the meaning of section 588FM, and cannot be relied on to extend the time to register under section 588FM.
  • Mere delay in registering a security interest and delay in applying for relief under section 588FM, will not preclude the Court from exercising its discretion to extend the time to register a security interest under section 588FM.