Swooping in to confirm our discussion in our last PPSA Frontline, is a new PPSA case from the Federal Court of Australia. In Pozzebon (Trustee) v Australian Gaming and Entertainment Ltd, in the matter of Australian Gaming and Entertainment Ltd (in liq) [2014] FCA 1034 (Pozzebon), the Court addressed section 588FL of the Corporations Act 2001(Cth) and whether a security interest was “perfected by registration, and by no other means”.

In that case, the security interest at issue was created on 24 December 2013, but not registered until 19 May 2014. Under section 588FL, a security interest will vest in an insolvent grantor if the security interest is not registered within 20 business days after the security agreement that gives rise to the security interest came into force. Since the registration of the security interest occurred almost five months after the security agreement was entered into, it would seem a clear cut case that the security interest vested in the grantor leaving the secured party to claim as an unsecured creditor.

However, on the basis of section 21, the secured party argued that the security interest was perfected by a means other than registration. When dealing with registered security interests, section 21(1)(b) together with section 21(2)(a) provide that a security interest in particular collateral is perfected if all of the following apply:

  1. the security interest is attached to collateral;
  2. the security interest is enforceable against a third party; and
  3. a registration is effective with respect to the collateral.

The secured party reasoned, therefore, that the security interest was perfected by attachment and enforceability and an effective registration.

The Court held that the secured party’s position was “misconceived and misapprehends the meaning and purpose” of section 21. The Court found that attachment and enforceability are “mandatory prerequisites to the perfection of a security interest” and that all the elements of section 21(1)(b) must be satisfied to perfect a security interest. The reference in section 588FL to “perfected by registration, and no other means” is to distinguish registration from “possession”, “control” or “temporary perfection” which are the other means by which security interests can be perfected. These other means did not apply in this case, so the Court held that the security interest vested under section 588FL.