A recent decision of the Federal Court of Australia concerning the administration of Hastie Group Limited is the first Australian case to deal with the Personal Property Securities Act 2009 (Cth) and represents a timely reminder of the importance for businesses to have adequate procedures in place to take advantage of the benefits afforded to secured parties by the PPSA.
The much anticipated Personal Property Securities Act 2009 (Cth) (PPSA) commenced operation on 30 January 2012. Its introduction represented one of the most significant commercial law reforms in Australia in recent times and brought about far-reaching consequences for many Australian businesses.
Whilst many businesses are still in the process of understanding the relevance of the PPSA to their operations, the Federal Court of Australia’s decision in Carson, in the matter of Hastie Group Limited (no.3)  FCA 719, highlights the importance of not only adequately and promptly registering security interests on the Personal Property Securities Register (PPSR), but also having systems in place to appropriately address issues that arise in the context of such registrations.
The Court, in this case, allowed the administrators appointed to the 33 companies comprising the Mechanical, Electrical and Plumbing (MEP) division of Hastie Group Limited, to sell certain assets in the possession of the Group, despite those assets being the subject of registrations on the PPSR.
The facts of the case
Upon the appointment of administrators to the MEP division companies, the Group held a significant amount of plant and equipment at 36 different locations, valued at approximately $6.4m.
The Group companies had 995 security interests registered against them on the PPSR (including by lenders, equipment lessors and retention of title suppliers) and the administrators were faced with significant difficulty in identifying and matching the plant and equipment to the large number of secured parties, especially given:
- that the majority of the PPSR registrations lacked sufficient detail to identify the plant and equipment covered by the security interests
- the existence of transitional security interests that were not registered
- the inadequate books and records of the Group relating to the nature and location of its plant and equipment
- the lack of employee assistance, due to the earlier termination of all but 20 of the 2,550 Group employees.
The administrators sought to identify the plant and equipment that might be the subject of registered security interests by requesting further information from all secured parties with registrations on the PPSR.
Further, the administrators advertised for creditors’ claims in major Australian newspapers and emailed 3,000 creditors requesting that they contact the administrators if they were seeking to claim an interest in any assets currently in the possession of the administrators.
Despite these efforts, a large number of secured parties failed to respond, and many of the responses did not assist in identifying the assets covered by the registrations on the PPSR or the relevant security agreements. After approximately five weeks, the responses received by the administrators only accounted for $2m worth of assets, leaving 3,684 items (or 77%) of the plant and equipment unclaimed by the purported holders of security interests.
Given these difficulties, and the high costs being incurred by the administrators to lease the sites on which the plant and equipment was being stored, the administrators considered that it was in the best interests of the Group and the creditors to seek directions from the Court to:
- sell the unclaimed plant and equipment by public auction, following advertisement in The Australian
- hold the proceeds of sale in a separate account (after payment of the administrators’ costs incurred in attending to the sale)
- notify all known creditors of the sale and the three month period in which they may make a claim against the proceeds
- after three months, apply the proceeds in the ordinary course of the administration.
The Court granted the relief requested by the administrators on the basis that there had been genuine and substantial difficulties in identifying the items of plant and equipment that might be subject to a security interest, and that the administrators had taken a number of steps to attempt to clarify the position as best they can.
What does this mean for your business?
The Hastie Group decision is a timely reminder of a number of issues for secured parties, including that:
- security interests registered on the PPSR should be clearly described
- registration alone will not always be adequate to protect a secured party’s interest in secured property
- secured parties with PPSR registrations should have reliable procedures in place to respond to requests from an administrator in a timely and adequate manner so as to ensure that their security interests are recognised by an administrator
- although transitional security interests do not need to be registered until the end of the 24 month transitional period in order to be afforded with the benefits of registration on the PPSR, the prudent approach is to register these security interests as soon as practicable, given that registration will, amongst other things, put an administrator on notice of their existence.