By Nirupa Manoharan, Special Counsel and Hannah Carne, Associate
In the recent decision In the matter of Accolade Wines Australia Limited and other companies  NSWSC 1023 (Accolade), the Supreme Court of New South Wales has provided further guidance on exercising its discretion to grant an extension of time for the registration of security interests.
The plaintiffs, Alleasing Pty Ltd and Alleasing Finance Pty Ltd (Alleasing), provide asset finance and leasing services to various customers (Grantors). Alleasing sought to perfect its security interests by registration on the Personal Property Securities Register (PPSR) (Initial Registrations). However, Alleasing’s financing statements were registered against the ABN of each of the Grantors rather than the ACN, a defect which potentially invalidated the Initial Registrations given the Grantors were not operating as a trust. Having picked up on the potential defects, Alleasing sought to remedy the situation by the registration of new financing statements on the PPSR (correctly referring to the Grantors’ ACNs) (New Registrations) and made an application to Court seeking:
- an order pursuant to section 588FM of the Corporations Act 2001 (Cth) (Act), fixing a time later than the requisite 20 business days after entry into the relevant security agreement for the registration of the security interests; and
- an order pursuant to section 293 of the Personal Property Securities Act 2009 (Cth) (PPSA), extending time beyond the requisite 15 day period stipulated in the PPSA to perfect its purchase money security interest (PMSI).
Was it open for Alleasing to make the application ex parte?
Alleasing made the application ex parte arguing this was appropriate because of the large number of Grantors who would otherwise have to be joined as a party. Justice Brereton disagreed and found that the fact that there had been earlier (though ineffective) registrations over the collateral was no reason to deprive the Grantors of an opportunity to be heard. His Honour did acknowledge that Alleasing had given all Grantors notice of the application and because no Grantor had indicated opposition or sought to appear, that significantly mitigated the objections to proceeding ex parte. His Honour agreed to hear the application ex parte but warned that it should not be assumed the same approach would be acceptable to the Court in future cases.
Application under 588FM of the Act
An application under s 588FM may be granted by a Court if it is satisfied that the failure to register earlier was accidental or due to advertence or some other sufficient cause.
To satisfy the onus of proving ‘inadvertence’, Alleasing led evidence from their CEO that the employees who effected the Initial Registrations utilised a third party service provider platform which provided no alert as to the significance of the choice between a grantor’s ABN and ACN and those employees were not aware that this made any difference to the status of the security interest. On that evidence, his Honour was satisfied that the discretion to “fix a later time” had been enlivened.
Application under section 293 of the PPSA
A court may make an order extending the time for registration of a PMSI under section 293 if it is satisfied that it is ‘just and equitable’ to do so. In considering the factors that the Court takes into account in determining whether to make such an order, his Honour relevantly noted that:
- the need to extend time must arise as a result of inadvertence (so raising the same issues as pursuant to section 588FM); and
- although any holders of ‘AllPAAPs’ (a registration over all of the entity’s assets) will lose priority to the later registered PMSIs, that was not conclusive evidence of prejudice in the present circumstances as:
- there was already a PMSI registration on the PPSR (albeit a defective one);
- an AllPAAP is always liable to be trumped, in respect of specific after-acquired collateral, by a PMSI in respect of that specific collateral;
- to the extent that an earlier AllPAAP holder will be prejudiced, it is only by losing a ‘windfall’ it had obtained by another secured party’s inadvertence; and
- notice that there was an earlier PMSI in respect of specific collateral is unlikely to have been material to a secured party’s decision to provide financial accommodation in the first place.
His Honour also confirmed that where an application is made under section 293, any secured party whose interest is liable to be postponed ought ideally to be joined as a party to the application which would inevitably increase the pre-application time, costs and burden on any party making such an application.
Take home thoughts
Accolade indicates that where an application is to be made under section 588FM of the Act, the relevant grantors should ideally be joined and served with the application. Similarly, where an application is to be made under section 293 of the PPSA, any secured party whose interests may be postponed by the making of the order should also be joined.
Given the likely significant time, delays and cost that would be incurred in following the above process, Accolade is a key lesson in the importance of registering security interests accurately the first time round. In Accolade, simply registering over both the Grantors ACN and ABN would have avoided the problems which later arose and which necessitated the application to Court.
In addition to registering accurately, Accolade is a useful reminder of some of the other pitfalls that secured parties may face with registering on the PPSR, including, for example, the failure to register on time (see our articles on the decisions of Re Carpenter International Pty Ltd  VSC 118 here and Pozzebon (Trustee) v Australian Gaming and Entertainment Ltd (in liq)  FCA 1034 here).
Should you have any concerns about your security interest registrations or the impact of the PPSA or the PPSR on your business, we recommend seeking legal advice to address those concerns sooner rather than later.
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