Insolvency practitioners can benefit from registration errors on the Personal Property Securities Register (PPSR).
Stay alert to any mistakes made by secured parties, as unregistered or invalidly registered interests could vest in the company.
Common errors include:
- Failing to register. Subject to some exceptions such as for security interests that are perfected by control or possession, if a security interest in personal property is not registered on the PPSR, it is not perfected.
Failing to register in time. Section 588FL of the Corporations Act 2001 (Cth) (Corporations Act) provides that a security interest vests in a company if the interest is not registered six months before administration or liquidation or 20 business days after the security agreement was created, whichever is earlier.
Failing to consider registrations made earlier in time. Where there are multiple security interests, priority is in the order of registered interests, with an unperfected (unregistered) interest being defeated by a perfected (registered) one.
Failing to register a PMSI (Purchase Money Security Interest). To claim the benefit of a PMSI “super priority”, which would trump other previously registered security interests, the PMSI box needs to be selected on the register and timing requirements must be met: Please click here to view table
- Common errors may result in invalid registrations providing means for insolvency practitioners to realise assets for the benefit of creditors.Failing to seek an extension of time for registration before insolvency. Section 588FM of the Corporations Act provides that a Court may extend the time to register a security interest if the registration was not done in time because of inadvertence and the extension would not prejudice creditors or shareholders. Section 293 of the PPSA also provides that a Court may extend the time to register and claim a PMSI priority (refer to 4 above). However, extensions cannot be obtained if there is no effective registration when the insolvency occurred.
- Failing to stipulate the correct grantor. Part 1.3 of Schedule 1 of the Personal Property Securities Regulations 2010 provides that when the grantor is a company, a security interest must be registered against the ACN, for a partnership or trust, the security interest must be registered against their ABNs, for a sole trader, against the name of that individual trader.
- Failing to register against the correct corporate entity. Registration must be made against the correct company which entered into the security agreement with the secured party. Often registrations are made against parent companies instead of the relevant subsidiaries.
- Failing to enter correct serial numbers of collateral. Serial numbers of serial numbered property, such as the vehicle identification number (VIN) of motor vehicles, are entered incorrectly invalidating their registrations.