The serious consequences that follow a failure to comply with the Personal Property Securities Act 2009 (Cth) (PPSA) were highlighted in the recent decision of Ward CJ in Eq of the Supreme Court of New South Wales in Psyche Holdings Pty Limited [2018] NSWSC 1254 (Psyche Case).

The Psyche Case is another reminder of:

  1. the importance of perfecting your security interest in accordance with the strict requirements of the PPSA;
  2. taking extreme care when lodging registrations on the Personal Property Securities Register (PPSR), by making sure that the registrations comply with the PPSA and are lodged within the statutory timeframes; and
  3. the very limited circumstances in which a court may exercise its discretion to grant relief when secured parties fail to comply with the PPSA.

Moral of the story? If you are a secured creditor and you have (or you think you have) an enforceable security interest, get advice and get it early. If you wait for a problem to arise before seeking advice, it may be too late to fix it under the PPSA.

The Facts

  1. On 20 June 2013, Ridgeway Finance Pty Limited (Ridgeway Finance) (as a secured party) entered into a general security deed with Psyche Holdings Pty Limited (Psyche) (as grantor) to secure payment of the loan by Ridgeway Finance to Psyche.
  2. On 26 June 2013, Ridgeway Finance lodged a financing statement on the PPSR in respect of this security interest using the Australian Company Number (ACN) of Psyche.
  3. At the time of registration, Psyche was acting as trustee of the LH Equity Trust (Trust) which had not yet been assigned an Australian Business Number (ABN).
  4. The Trust was later assigned an ABN.
  5. On 3 July 2013, Ridgeway Finance became aware that the Trust had been assigned an ABN.
  6. Ridgeway Finance did not understand the significance of the Trust's ABN and the impact it had on the enforceability of its security interest.
  7. As a result, Ridgeway Finance did not take any immediate steps to amend its registration on the PPSR.
  8. On 6 July 2018, Ridgeway Finance became aware that as a result of the ABN being assigned to the Trust in 2013, the registration on the PPSR was incorrect and should have been made against the ABN of the Trust in order to perfect their security interest under the PPSA.
  9. Ridgeway Finance attempted to fix their mistake by registering a new financing statement on the PPSR using the ABN of the Trust (Later Registration).

The Issue

The Later Registration was lodged on the PPSR outside of the statutory timeframes (5 years too late!).

The court had to consider whether to exercise its discretion and grant an extension of time in order to allow Ridgeway Finance to rely on the Later Registration.

The Verdict

In this case the court held that:

  1. where a registration is correct at the time of lodgment but then becomes incorrect, the registration becomes ineffective 5 business days after the secured party becomes aware of the defect;
  2. the court has a discretion to fix a later time for a registration if the court is satisfied that:
    • the failure to register in time was accidental or due to inadvertence or some other sufficient cause; or
    • the failure to register in time was not of such nature as to prejudice the position of creditors or shareholders; or
    • on other grounds, it is just and equitable to grant relief;
  3. Ridgeway Finance did not appreciate that, upon becoming aware that the Trust obtained an ABN, it was required to lodge a financing statement within 5 business days of receiving that knowledge and that failure to do so would result in its security interest becoming unperfected;
  4. Ridgeway Finance's error was an innocent mistake (as opposed to a disregard for its statutory obligations);
  5. secured creditors were not prejudiced by the Later Registration because there was only one other secured creditor, which already had priority over Ridgeway Finance;
  6. unsecured creditors were not prejudiced by the Later Registration because the original defective registration would have disclosed the relevant security interest even though the registration was defective; and
  7. on this basis, the court exercised its discretion and granted an extension of time to Ridgeway Finance, so that it may rely on its Later Registration (subject to certain conditions).

Ridgeway Finance may have been lucky on this occasion given the specific circumstances of this case.

Often mistakes in compliance with the PPSA are not easily forgiven. See our article 'Error in the PPSR Registration? Court confirms (yet again) the cost of getting it wrong', where the secured party in that case was denied an extension and, as result, lost approximately $23 million worth of assets!