The ‘udder’ necessity of registering on time

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By Ariel Borland, Partner and Nirupa Manoharan, Special Counsel

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’).

In particular, the Court held that it is the contractual date of the security agreement that gives rise to the security interest. This triggers the start of the 20 business day period under section 588FL of the Act, rather than the date the security interest is assigned, attached or becomes enforceable. The Court also held that where a security interest is registered on the same day as the appointment, but prior to the time of the appointment, the vesting provisions under section 267 of the PPSA are not enlivened.


Carpenter International Pty Ltd (‘Carpenter’) was in the live cattle export business.  Its business involved purchasing cattle through an agent and exporting cattle overseas.  Administrators were appointed to Carpenter on 24 March 2015 and 3,222 heads of cattle were subject to competing claims between Carpenter and, among others, Dairy Livestock Services Pty Ltd (‘DLS’), Charles Stewart & Company Pty Ltd and Charles Stewart Nash McVilly Pty Ltd (together ‘CS’). The Court was asked to consider the following issues:

  1. whether the security interests held by DLS and CS vested under section 588FL of the CA; and
  2. whether the security interest held by CS vested under section 267 of the PPSA.

Had DLS’s or CS’s security interest vested under section 588FL, CA?

DLS and CS were livestock agents for various vendor famers.  DLS and CS were del credere agents, meaning they guaranteed the purchaser’s payment of the purchase price, received a commission and on payment to the vendor took an assignment of the vendors’ rights under the sale contracts, including rights under a retention of title (‘ROT’) clause.

DLS registered its security interest within 20 business days of its payment to the vendor. DLS did not, however, register its security interest within 20 business days of the execution of its contract with the vendors.

The issue to be determined was whether the security agreement that ‘gave rise’ to DLS’s security interest ‘came into force’ within 20 business days of DLS registering its security interest on the Personal Property Securities Register (‘PPSR’) and, if it did not, if that security interest vested in Carpenter pursuant to section 588FL, CA.

DLS argued that the 20 business day period commenced from the date of the assignment of rights to it by the vendor not the date of the contract itself. Her Honour rejected this argument and held that the source of DLS’ security interest was the assigned contract, and the assignment of the vendors’ rights under the ROT clause to DLS following payment did not create a new security interest. Finding otherwise would result in a new 20 business day period under section 588FL(2)(b)(ii) commencing each time a security interest was assigned, undermining the legislative purpose of the section.  Accordingly, the Court held that the execution date of the contract with the vendors was the date on which the security agreement ‘came into force’ and the 20 business day period in section 588FL ran from this date.

Vesting of CS’s security interest under section 588FL was also considered.  CS submitted that its contracts and security interest only ‘came into force’ once Carpenter sent them final rejection lists relating to the cattle to be purchased by it. CS argued that the obligation to perfect the security interests by registration on the PPSR was triggered at this time because the contracts became unconditional and binding.  The basis of this argument was that a “security interest is enforceable against a grantor in respect of particular collateral only if the security interest has attached to the collateral” pursuant to section 19(1), PPSA.

Her Honour concluded the 20 business day time period under section 588FL(2)(b)(ii) runs from when the security agreement giving rise to the security interest comes into force i.e. when the agreement was executed and not, as was argued, when the security interest attached or became enforceable.

As a final issue, the Court was asked to consider exercising its discretion to extend the time for registration under section 588FM, CA.  The secured party argued its failure to register was, among other things, due to an accident or inadvertence. However, on the evidence, her Honour also rejected this argument.

Had CS’s security interest vested under section 267, PPSA?

CS’s security interest was registered on the day of the appointment of the administrators, although a few hours prior to the appointment itself.

Carpenter argued that section 267(2), PPSA provided for retrospective vesting immediately before the event mentioned in section 267(1)(b)(ii), being the section 513C day (or the day on which the administration is taken to have begun).  It was argued by Carpenter that although the secured party “beat the appointment to the finishing line by a couple of hours” the security interest was unperfected ‘as at’ the commencement of the administration by reference to the section 513C day.

Her Honour noted the issue was not without some difficulty but, on proper construction, vesting under section 267, PPSA occurs immediately before the particular time (not day) of the appointment of the administrator.  To determine otherwise “would not give effect to the plain and ordinary language of the statute”. As such, the Court held that CS’s security interest had not vested in Carpenter under section 267 of the PPSA.

Take away points

The claims and issues discussed in the 90 page judgment confirm 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.

The judgment also helps clarify some of the grey areas in the provisions of the CA and PPSA regarding the circumstances when, and conditions in which, a security interest will be deemed to arise and vest under the relevant statutory rules.

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.

For further information, please do not hesitate to contact us.

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