The Western Australian Supreme Court has further reinforced the importance of registering security interests under the Personal Property Securities Act 2009 (Cth) (PPSA). Specifically the Court held that section 588FM of the Corporations Act 2001 (Cth) (Corporations Act) has no application to extend the date for registration of an unperfected security interest to prevent it from vesting under section 267(2) of the PPSA.
NFT Specialized in Tower Cranes LLC (NFT) and Machforce Pty Ltd (Machforce) entered into 6 separate rental agreements between 19 September 2014 and 9 July 2015 for rental by Machforce of tower cranes (and parts) for a minimum period of 12 months (Rental Agreements). In July 2015, Machforce began to default on its rental payments under the Rental Agreements.
NFT brought proceedings in the Western Australian Supreme Court against the liquidators of Machforce after the liquidators determined on 6 April 2016 (then in their capacity as administrators) that the 6 cranes had vested in Machforce immediately before their appointment as administrators on 29 March 2016 (Appointment Date). One of the cranes was subsequently returned to NFT, but title to the other cranes remained contested.
In finding for Machforce, Acting Master Strk found that:
- the Rental Agreements gave rise to security interests as “PPS leases” under section 13(1)(d) of the PPSA on the basis that firstly, they were for a period of up to one year (they were not on their terms expressed to be for a period of more than one year) and had not been effectively terminated on 16 January 2016 (as claimed by NFT); and secondly, Machforce had, with the consent of NFT, retained substantially uninterrupted possession of the cranes for a period of more than one year after the day it first acquired possession of them;
- at all material times up to and including the Appointment Date, NFT was not in possession of the cranes and had not taken any active steps to retake possession (and as such had not perfected its security interests under section 21(a) or (b) of the PPSA). Further, NFT had not registered a financing statement in respect of its security interests before the Appointment Date (in fact, financing statements were not registered until 11 May 2016). As a result, immediately prior to and at the Appointment Date, NFT’s security interest in the cranes under the Rental Agreements remained unperfected; and
- as NFT’s security interests in the cranes remained unperfected at the Appointment Date, those security interests vested in Machforce pursuant to section 267(2) of the PPSA on and from the Appointment Date.
Acting Master Strk also declined to make an order under section 588FM of the Corporations Act for an extension of the date for registration of NFT’s security interests on the PPSR to 11 May 2016 for the following reasons:
- section 588FM has no application in circumstances where immediately prior to and at the Appointment Date, NFT’s security interests in the cranes under the Rental Agreements remained unperfected. An order under section 588FM affects the date by which a financing statement must be registered to avoid the vesting of the security interest under section 588FL. However the security interests in this case did not vest under section 588FL but instead vested under section 267 of the PPSA;
- section 588FL applies only if the security interest was perfected by registration (and by no other means) ‘at the critical time’ under section 588FM(2)(a) (in this case, the date of appointment of an administrator). The failure to register a financing statement immediately prior to the Appointment Date meant that no security interest was perfected under the PPSA by registration and the section 588FL(2)(a) requirements had not been met;
- and even if it were accepted that an order under section 588FM could be made, in all of the circumstances, such order would not be justified on the basis of inadvertence. On the evidence, NFT knew or ought to have made itself aware, of the requirements of registration and the implications of late registration.