Introduction
A security interest granted under the Personal Property Securities Act 2009 (Cth) can be perfected by registration on the Personal Property Securities Register (“PPSR“) at any time. However a late registration can vest in the grantor company. This means the secured party will lose the benefit of the security.
Section 588FL of the Corporations Act 2001 (Cth)(“Act“) provides, in effect (and among other provisions), that a security interest will “vest” in the grantor if:
- the secured party registers its security interest more than 20 days after the relevant security agreement comes into force; and
- within the following 6 months, the grantor company is wound up, enters voluntary administration or becomes subject to a deed of company arrangement (“DOCA“) (defined as the “critical time”).
Where a registration is affected by s588FL, it is possible to apply to court under s588FM of the Act for an order extending the registration time – effectively preventing a vesting of the security interest.
In the matter of Antqip Hire Pty Ltd (in liq) [2021] NSWSC 1122, Brereton JA clarified whether s588FL applies to security interests granted by a company after the critical time.
Facts
Antqip Hire Pty Ltd and a related company (together, Antqip Companies) entered voluntary administration on 3 February 2014. In May 2014, the Antqip Companies entered into a DOCA.
On 26 October 2014, while subject to the DOCA, National Funding Group Pty Ltd (NFG) loaned $3,357,000 to the Antqip Companies secured by a charge over the Antqip Companies’ personal property.
On 27 October 2014, NFG registered its security interests on the PPSR. Because the registrations were made within “20 business days after the security agreement that gave rise to the security interest came into force” (see s588FL(2)(b)(ii)), s588FL did not apply and the registrations were effective.
However, due to an administrative oversight, the registrations were allowed to lapse in October 2017. NFG discovered this in April 2019 and then made new registrations.
Within 6 months of the new registrations being made, the Antqip Companies were wound up. Accordingly, it was thought that the new registrations were captured by s.588FL and NFG therefore risked losing the benefit of its security. NFG applied for an order under s.588FM to extend the time for registration of the interests.
Held
Brereton JA held that, because the Antqip Companies were wound up while they were still subject to the DOCA, the “critical time” for the purposes of s.588FL was the “s513C date” in relation to the administration that ended when the DOCA was entered into. That is, the “critical time” was 3 February 2014, being the date the Antqip Companies first entered voluntary administration.
Because the security interests were granted to NFG on 26 October 2014, the security interests were granted, and arose, after the “critical time”.
Brereton JA then considered whether s588FL applies to security interests granted after the “critical time”. Specifically, his Honour considered the meaning of s.588FL(2)(b)(a), which provides that s.588FL will apply if (among other conditions) the interest is perfected by registration “at the critical time, or, if the security interest arises after the critical time, when the security interest arises” (emphasis added).
His Honour concluded that “arises” in s588FL(2)(b)(a) is a reference to a security interest “attaching” to the collateral, thereby becoming enforceable against third parties. Accordingly, his Honour held that s588FL:
- will apply to a security interest that is granted before the “critical time” but which does not arise (that is, attach) until after the “critical time” (such as where future property is acquired by the grantor company);
- will not apply to a security interest that is granted after the “critical time” (contrary to earlier decisions on this point: J. Renfrey Nominees Pty Ltd (Trustee), in the matter of OneSteel Manufacturing Pty Ltd v OneSteel Manufacturing Pty Ltd [2017] FCA 325; (2017) 120 ACSR 117; Ten Network Holdings Ltd (admins apptd) (recs and mgrs apptd) [2017] FCA 1144; Hill (admin) in the matter of Flow Systems Pty Ltd (admins apptd) [2019] FCA 35).
Brereton JA held that, because s588FL did not apply to NFG’s security interests, NFG’s registrations were effective and it was therefore not necessary to grant an extension of time under s588FM.
Take away
This decision is good news for financiers, prospective purchasers and other parties who deal with companies in administration, liquidation or subject to a DOCA. They now can avoid having to make an application to court (usually made out of caution) thought to prevent a security interest from being extinguished immediately upon entering into a security agreement .
Generally speaking, secured parties should perfect their interests as soon as possible, ideally by registration before a security agreement is entered into.
~ by Marcus Fogarty, Associate
