Litig8: PPSA: The ‘udder’ necessity of registering on time

By Ariel Borland, Partner; Nirupa Manoharan, Senior Associate

Each month as a part of Mills Oakley’s Litig8, we bring to you snapshots of eight key cases, legislative changes or other legal events. The summaries are not comprehensive and do not constitute legal advice. You should seek professional advice before taking any action based on the content of this email.

Part 7 of the May edition of Litig8

The recent Supreme Court of Victoria decision of Re Carpenter International Pty Ltd [2016] VSC 118 provides practitioners with useful guidance on the operation of the timing rules in section 588FL of the Corporations Act 2001 (Cth) (‘CA’) and section 267 of the Personal Property Securities Act 2009 (Cth) (‘PPSA’).

This case confirms the paramount importance for any secured party of registering their security interest as soon as, if not prior to, executing the relevant security agreement which gives rise to that security interest.

Carpenter International Pty Ltd (‘Carpenter’) was in the live cattle export business.  Administrators were appointed to Carpenter on 24 March 2015 and certain cattle were subject to competing claims between Carpenter and various agents who sold cattle to Carpenter. The Court was asked to consider the following issues:

(a) whether the security interests held by the agents vested under s588FL of the Corporations Act 2001 (Cth) (‘CA’); and

(b) whether the security interest held by agents vested under s267 of the Personal Property Securities Act 2009 (Cth) (‘PPSA’).

For the purposes of s588FL of the CA the Court held that the security agreement that ‘gave rise’ to the security interest ‘came into force’ on the execution of the original security agreement, and not on the assignment of those rights to a third party or on the attachment of the security interest to particular collateral. The effect of this is that registration must occur within 20 business days of the execution of the security agreement to ensure that the security interest will not vest under s588FL of the CA if an external administrator is later appointed.

On the operation of s267 of the PPSA, the Court held that provided the registration occurs prior to the actual time of the appointment, even if it is on the same day as the appointment, the security interest will not vest under s267 of the PPSA.

As a practical takeaway point, to minimise the risks associated with determining when a security interest arises when dealing with the transfer of interests between parties, a novation, rather than an assignment, of those contractual obligations and rights may be preferable as it creates greater certainty in determining the point in time those rights and obligations arise.

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