Extending the operation of time to register security interests
Directors of “secured” parties and liquidators alike should be aware of timing considerations that impact upon the validity of registrations on the Personal Properties Securities Register (PPSR) pursuant to section 588FL of the Corporations Act 2001 (Cth) (Act). Relevantly:
- collateral must be registered within 20 days after the security agreement comes into force to ensure that the security interest prevails over the interest of unsecured creditors, even if the company goes into liquidation or administration within 6 months; and
- if collateral is not registered within 20 days after the security agreement comes into force, then the security interest generally vests in the company for the benefit of creditors unless a later time is fixed pursuant to section 588FM of the Act and thereby exposes the secured creditor to the loss of its security..
There are various bases upon which an “extension of time” application may be brought pursuant to section 588FM of the Act. Some of these include that the failure to register the security interest arose “due to inadvertence” or because it would be “just and equitable” to grant relief.
The Court has considered the phrase “inadvertence” and observed that it:
- includes a “failure to advert to or understand the requirement for registration within the specified period, and innocent error in the sense of failure to register through ignorance of the legal requirement to do so, or of the consequences of not doing so.”
- goes beyond ignorance of the requirement to register entirely and “may also be established where a party operates under a mistake as to the consequences of failing to register a security interest.”
- is concerned with human error or oversight or not being properly attentive and “will readily be found where an error of a secured creditor in not attending to registration of its security within time is innocent and does not result from any disregard of its statutory obligations.”
Any applications pursuant to section 588FM of the Act should join the grantor of the security interest and potentially other relevantly affected parties. Applications pursuant to section 588M may be heard where a relevant defendant has been joined to the proceedings, has been notified of the proceedings and confirmed that it does not oppose the orders sought. Factors which favour granting relief pursuant to section 588FM of the Act include:
- Oversight and error/s of the solicitor acting on the transaction;
- External administrators consenting to the relief being granted; and
- Short delay between the end of the 20-day business period and the date upon which the registration was made.