Australian Courts were asked to consider and determine applications under the Personal Properties and Securities Act 2009 (Cth) a number of times in 2014. In the first of two parts of their article, Partner, Tom Griffith and Associate, Stefano Calabretta summarise some of the notable decisions handed down and discuss their significance.
Security Interest Perfected by Registration and by no other means: Pozzebon (Trustee) v Australian Gaming and Entertainment Ltd  FCA 1034
In this case timing was everything. The applicants sought a declaration that their security interest was valid and enforceable against the Company in liquidation.
A valid security interest existed in favour of the applicant, however despite the relevant transaction documents between the applicant and the respondent being executed on 24 December 2013, the applicant’s security interest was not registered until 19 May 2014.
On 26 May 2014 the company went into voluntary administration.
There was an immediate problem for the applicant because it had not registered within 20 days of the security agreement coming into force for the purposes of s588FL(2)(b) and the registration was within six months of an insolvency event.
The respondent contended that the applicant’s security interest was unenforceable against the company and had vested in the company pursuant to the Corporations Act and the Personal Properties and Securities Act 2009 (Cth) (PPSA). It said that the security interest had been perfected by registration alone, and that therefore s 588FL(2) Corporations Act applied.
The applicant contended that the security interest was not perfected by registration alone, but by attachment and enforceability and effective registration and that therefore the requirements of s588FL(2)(a) were not met, and there was no vesting of the security interest.
The Court (Justice Collier) rejected the applicant’s contentions and applied the strict time periods under the Corporations Act, and further held that cases concerning s 21(2) of the PPSA (with respect to temporary perfection) had no application to these particular facts.
The decision is a stark reminder of the adverse consequences of failing to register a security interest in a timely fashion. It is worth noting that it is possible to register prior to execution of a security agreement, provided that there is a basis to do so (see our comments about sham financing statements below).
Get rid of it – it’s a sham! Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd  VSC 217
This was the first decision in which the judicial process was invoked to remove a sham financing statement under section 182 of the PPSA.
The plaintiffs first contended that no security interest was granted to the first defendant Coppersmith Pty Ltd (Coppersmith) and that the plaintiffs had not entered into any agreement with Coppersmith, including any agreement that would give rise to a security interest. On that basis, the plaintiffs contended that there was no proper basis for the lodgement of financing statements on the PPSR against the plaintiffs by Coppersmith.
The plaintiffs also contended that the second and third defendants, Phillip and William Popplestone had no registrable security interest under the PPSA. Their primary submissions were that the Popplestones’ claim was a proprietary interest (and not a claim to a security interest) and that any interest the Popplestones might have held in the plaintiffs’ personal property did not arise by way of a consensual transaction as required under the PPSA.
Under the PPSA, there are two ways that a sham financing statement can be removed. The first is an administrative process under sections 179 to 181 of the Act, while the second is a judicial process under section 182. This administrative process requires the Registrar of the PPSA to give the holder of the registration an ‘amendment notice’ to show why his or her registration ought to remain on the register. If no response is received within five business days, the Registrar is then required to register the financing change statement served in the amendment demand which effectively removes the sham registration.
Interestingly, in this case, the administrative process described above had already been followed and the sham registrations had been removed from the register. However, clearly concerned about defendants’ recidivist behaviour (threats has been made to place further unfounded registrations on the PPSR), the plaintiffs sought orders to restrain Coppersmith and the Popplestones from making other unfounded registrations on the register.
The Court accepted that neither Coppersmith nor the Popplestones had a registrable security interest over the personal property of the plaintiffs.
The Court found that although the Popplestones’ claim might give rise to an interest in equity, such a claim cannot be registered under the PPSA as it does not arise under consensual transaction. The Court also found that the rights of the Popplestones did not secure payment of any sum or the performance of any obligation.
Ultimately the Court made orders restraining Coppersmith and the Popplestones from seeking to register a financing statement claiming a security interest in the plaintiffs’ personal property in circumstances where they were found to have no such interest and nevertheless threatened to continue to seek to register a security interest that would inconvenience and damage the plaintiffs.
Whether a sham financing statement needs to be removed by administrative or judicial means, what is clear is that the process comes at a cost and an inconvenience to the would-be grantor of an alleged security interest. The Sandhurst case is useful because it demonstrates the utility of seeking orders under section 182 of the PPSA restraining a person from continuing to register a sham security interest. The case also clarified that a non-consensual interest arising at equity is not capable of registration under the PPSA.
The Registrar’s Power to Fix Mistakes: SFS Projects Australia Pty Ltd v Registrar of Personal Property  FCA 846 and  FCA 987
The Court here considered whether the Registrar of Personal Property Securities has the power to correct the register under s 186 of the PPSA.
In an unintended outcome, the assignor of three security interests applied to the Registrar to register ‘financing change statements’ which sought to amend ‘registered financing statements’ for the security interests in a manner inconsistent with the intention of the assignors or the applicant assignees. Both the assignees and the assignors consented to the application, but the Registrar contended that he did not have power to do what was sought.
The applicants contended that the registrations had been removed from the registrer and applied to the Registrar under s 186 to restore the registrations. On behalf of the Registrar it was contended that the Registrar had no power to remove or restore data under s186 of the PPSA if it carried out a registration in accordance with an application. The applicants successfully contended that the Registrar did have such a power even in the absence of an error by the Registrar.
The decision is important for the Office of the Registrar as it should give him confidence to use his powers under s 186 to correct obvious errors, even those not oftheRegistrar’sownmaking.
Conclusion and other honourable mentions
The above three decisions have provided much needed judicial guidance on the proper application of certain key provisions of the PPSA. Two other notable decisions concerning the PPSA handed down earlier this year were White v Spiers Earthworks Pty Ltd  WASC 139 and Central Cleaning Supplies (Aust) Pty Ltd v Elkerton (in his capacity as joint and several liquidator of Swan Services Pty Ltd (in liq))  VSC 61 are currently the subject of appeal. Stand by for further updates on the outcome of these appeals, and the second part of our PPSA 2014 year in review article, to be released in early 2015!