When should you register a personal property security interest?

In Re Carpenter International Pty Limited [2016] VSC 118 the Supreme Court of Victoria decided whether an insolvent company involved in the live cattle export business owned certain cattle in dispute. The case concerned the entitlement to the sale proceeds and the earliest time to register a personal property security interest.

The defendant livestock agents were creditors of Carpenter who bought cattle for Carpenter from vendor farmers and guaranteed the purchaser’s payment of the purchase price. The defendants contended that they perfected security interests in some of the cattle and that Carpenter had no rights to those cattle.

The key issue was whether the creditor should have registered its interest at the earliest possible date.

Under section 588FL of the Corporations Act in order for a personal property security interest to prevail in an insolvency it must be registered by the latest of the following times:

(i) 6 months before the critical time (ie the insolvency date);

(ii) the time that is the end of 20 business days after the security agreement that gave rise to the security interest came into force, or the insolvency date.

Whilst not all of the cattle were subject to PPS registrations, the relevant issue was the status of cattle which were the subject of registration on the PPSR before the administrators were appointed. They were also the subject of contracts, sometimes constituted by multiple signed sets of terms.

After resolving which contracts applied (and whether these contracts had retention of title clauses) the court held that Carpenter had title to the cattle.

It was not disputed by Carpenter that the retention of title clauses amounted to a security interest under the Personal Property Securities Act 2009 (Cth) (‘the PPSA’).

The key issue to be determined was whether the security agreement that ‘gave rise’ to the security interest, ‘came into force’ within 20 business days before the defendant registered that security interest on the PPSR. If it did, s 588FL of the Act did not apply to the security interest. If it did not, s 588FL does apply and the security interest vests in Carpenter. The defendant did not seek any extension of time under s 588FM.

When to register?
The defendant argued that a precondition of its registration of its security interest was payment to the vendors even though there was an earlier contract.

The court decided that given the defendant’s status as agent and the fact that it did (possibly regularly) pay vendors, it would have had reasonable grounds at the time of signing the contracts for believing that it would become a secured party.

“Registering in advance of assignment is also contemplated by s 162 of the PPSA, which provides that a ‘financing statement, or a financing change statement, may be registered to reflect the transfer of a security interest, or of collateral, before or after the transfer’. … Statements as to registration being possible do not mean that time in s 588FL(2)(b)(ii) starts to run from the date that registration is possible. Registration is still possible more than 20 days after the relevant security agreement comes into force, but this does not mean that the time in s 588FL(2)(b) (ii) begins to run at a date later than when the security agreement came into force.

…I reject [the defendant]’s submission that its approach to registration was reasonable in the circumstances and that no other approach was open to it. I have already outlined the other approaches that were open to [the defendant]. Another approach would have been for [the defendant] to apply for an extension of time to register under s 588FM, possibly on the basis that the vendors failed to register earlier due to inadvertence or some other sufficient cause.

…. [the defendant] did not register its security interest within 20 business days of the dates of execution of the … contracts. Accordingly, its security interests in the cattle the subject of the contracts to which it was a party, vested in Carpenter under s 588FL.”

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