The recent New South Wales Supreme Court case of Barclays Bank plc  NSWSC 1095 (24 August 2012) has become the second case (after Hastie) to give substantive consideration to an issue arising under the Personal Property Securities Act (PPSA).
In the decision, Black J applied the law which had developed under the old section 266(4) of the Corporations Act 2001 (Cth), as to whether it was appropriate to extend the time for registering a charge on the old ASIC Register (i.e. where it was not registered in the required 45 days) to the new section 558FM of the Corporations Act, which relates to the extension of time to register security interests under the PPSA.
Barclays Bank plc provided a loan facility to Sportingbet plc. As part of that facility, an Australian subsidiary of Sportingbet, Centrebet, was required to provide security to Barclays. Centrebet executed a General Security Deed on 24 April 2012 and was advised that a financing statement should be registered within 20 business days of the deed coming into force. Barclay’s UK counsel overlooked this requirement and failed to take steps to register the deed until 9 August 2012, some two months after the last day on which it should have been registered to avoid vesting under section 588FL(2).
Barclays applied to the NSW Supreme Court for an order under section 588FM extending the time for registration to 9 August 2012.
Section 588FL provides for the vesting of certain PPSA security interests upon the occurrence of specified events (namely, a company being wound up, an administrator being appointed, or a deed of company arrangement being executed (the critical time)). By virtue of section 588FL(2), a security interest will vest unless it is registered before the latest of:
- 6 months before the critical time;
- 20 business days after the security agreement came into force;
- if the security agreement is a foreign agreement, 56 days after the security interest first became enforceable in Australia; and
- a later time ordered by the court under section 588FM.
Section 588FM(2) provides that the court may make an order fixing a later registration time where it is satisfied:
- that the failure to register the collateral by the required time was accidental, inadvertent or not of a nature to prejudice creditors or shareholders; or
- that it is just and equitable to fix such a later time.
Sections 588FL and 588FM were introduced into the Corporations Act by the Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth) (Amending Act). Given the ‘broad similarities’ between repealed section 266 and the replacement section 588FM, Justice Black considered that it was appropriate to apply the case law relating to repealed section 266(4), when exercising the court’s discretion under section 588FM. We note that this approach is consistent with several statements contained in the explanatory memorandum for the Amending Act, which contemplated that the approach under the old section 266 was to be applied to the equivalent PPSA provisions.
Justice Black held that it was appropriate to make orders under section 588FM, fixing a later date for registration.
Justice Black was satisfied that Barclay’s failure to register their security interest was ‘accidental or inadvertent’ within the previously understood meaning of those terms. In this regard, Black J had regard to the fact that Barclay’s UK counsel had had limited experience in finance transactions, had received limited training in the PPSA regime and had only become aware of the timeframe for registration in July 2012, some 2 months after the registration window had actually expired. Although noting that the UK counsel could have acted more promptly after becoming aware of the registration timeframe, Black J was satisfied that Barclay’s counsel did not then appreciate the potentially serious consequences of late registration. In this regard, Black J expressly acknowledged that such errors are unsurprising during the transition to the PPSA regime.
In considering whether it was appropriate to exercise the court’s discretion, Black J noted, applying principles developed in the authorities dealing with the old section 266, that it was relevant that Sportingbet and Centrebet did not oppose the application, Centrebet was in a strong financial position, there had been no material change in Centrebet’s financial position during the delay period, no security had been granted to third parties during the delay period and no material debt had been incurred during the delay period.
Accordingly, Black J was satisfied that late registration would not prejudice the position of Centrebet’s creditors or disturb or affect any accrued or accruing rights.
What this means
In light of Black J’s decision in Barclays Bank plc, parties should be aware that the law which had developed under the old section 266(4) of the Corporations Act will be directly relevant to the exercise of the court’s discretion under section 588FM. Further, in circumstances where the corresponding provision of the PPSA (being section 293) is in similar but not precisely the same terms as section 588FM, it is to be expected that comparable principles will apply to orders sought under section 293 of the PPSA.
While certain comments in the case may indicate a level of judicial tolerance during the transition to the PPSA regime, as time goes on, parties should expect less leeway regarding delays to registration.
The issue left unresolved by the case is whether simple ignorance of the PPSA by a supplier of goods would constitute “inadvertence or some other sufficient cause” (so that it could be just and equitable to extend the time to register a retention of title security interest for instance). The authors submit that it should not, as to allow an extension in such circumstances would undermine the policy behind the PPSA generally and the transitional provisions in particular. However, it is to be anticipated that such an argument will be pursued by an adversely impacted ROT supplier in the near future.