A recent Federal Court of Australia decision in the administration of the Hastie Group Limited (Hastie Group)1 illustrates a number of important points for administrators, secured parties and purchasers under the new regime established under the Personal Property Securities Act 2009 (Cth) (PPSA). If you would like to discuss the implications of this case with any of our PPSA or insolvency litigation experts, please do not hesitate to contact us.
The administrators were faced with 995 registrations recorded against the Hastie Group on the Personal Property Securities Register (PPSR). They asked the secured parties (which included not only lenders but also equipment lessors and persons that had supplied goods on retention of title terms) for further information to assist them to identify the property that was subject to the security interest being claimed. This step was taken by the administrators since (as the Judge specifically commented) "given the level of generality of many of the registrations in the PPSR…it has proved extremely difficult for the administrators to rely upon the PPSR for the purpose of identifying property that is subject to third party security interests."
In addition, the administrators placed advertisements in major Australian newspapers and emailed approximately 3,000 creditors, in each case requesting that creditors contact the administrator if they seek to claim an interest in any items currently possessed by the administrators.
However, a large number of secured parties failed to respond to the administrator's request or advertisements, and many of the responses that were received were said to be of little assistance as they still did not adequately particularise the equipment or the applicable security agreement. As a result, approximately 3,684 items representing 77% of the total number of items of equipment identified by the administrators remained unclaimed.
Directions sought by administrators & decision of the court
Given the costs involved in storing the unclaimed equipment, the administrators sought directions from the court2 to allow them to dispose of the equipment, with the proceeds of disposal (after payment of the administrators' costs of attending to the sale) to be retained for 3 months. The directions sought provided for the creditors to again be notified of the disposal of the equipment (to afford them an opportunity to claim the proceeds) and, after the 3 month period, any remaining proceeds would be distributed in the ordinary course of the administration, which means to the banks as the senior secured creditors of Hastie Group.
The court made the directions sought by the administrators, having satisfied itself that "there have been genuine and substantial difficulties in identifying those items of plant and equipment that might be subject to a security interest and that the administrators have taken a number of steps to attempt to clarify that question as best they can…".
Implications for secured parties
This case illustrates a number of important points for secured parties (including, in particular, lessors and suppliers of goods on retention of title terms):
- Secured parties should take care to clearly identify and describe in their PPSR registrations the property that is subject a security interest they are claiming. This will assist an administrator to identify particular property to which a security interest relates and, therefore, reduce the likelihood that property subject to a security interest in favour of a secured party (such as that of a lessor or retention of title supplier) will be dealt with under an order of the type made in this case;
- Despite the above, a secured party should ensure that it also has in place robust and reliable procedures to ensure that it responds to requests from an administrator. For example, an administrator may seek to use the email address of a secured party notified in a PPSR registration to contact the secured party with a request for further information regarding the security interest. The secured party should ensure they have processes in place to bring these types of communications to the attention of the relevant personnel in their organisation;
- This is an early example of administrators using the broad provisions of the Corporations Act to cut across some of the protections afforded to secured creditors under the PPSA (such as those relating to the extinguishment of security interests and the attachment of security to proceeds of collateral), in circumstances where compliance with the PPSA would be extremely difficult and costly in light of the quality of information on the PPSR and the fact that many security interests of lessors and suppliers that were created before the commencement of the PPSA have not been registered on the PPSR (since they currently benefit from a 24 month transitional period for such interests); and
- The decision also highlights the benefits of promptly registering a transitional security interest (rather than waiting until closer to the end of the 24 month transitional period), being that the transitional security interest will be visible to an administrator and, therefore, that the secured party will be contacted by them.