North Sydney Commercial Lawyers

Personal Property Securities and the PPS RegisterPrint This Post

Judge Judy once said “Just because you say it, doesn’t mean it’s true”.

Unfortunately many people still go to court emboldened by the idea that if they and their legal team assert something long enough and loud enough, then the Judge will believe them.

Leigh Adams Business Lawyers specialises in the Personal Property Securities Act and we are able to cut through client’s apprehensions and misapprehensions and tell it how it is – that is, what works and what doesn’t.

Treasury Wines

In the recent Treasury Wine Estate Case [2016] FCA 715, Mr Garrett had registered a security interest over property owned by Treasury Wine Estate Vintners (Treasury Wines).

Mr Garrett had problems with his registration. Firstly, he was a bankrupt so any security interest he may have had vested in his bankruptcy trustee.

Secondly, the security interest was said to arise out of his rights as an indemnified person under a contract under which the indemnifier agreed to keep him harmless against loss that may arise as a result of using a certain trademark. The Court said that a right of indemnity is not a security interest.

The Court went on and said that even if a right of indemnity were in the nature of a security interest, it could never be a security interest as contemplated by the Personal Property Securities Act because until the Court exercises its discretion in favour of the indemnified party, the indemnified party only has a “mere hope” and therefore the indemnity is not consensual in nature. Recent cases make it clear that a security interest must be consensual in nature.

Thirdly, Mr Garrett registered the security interest against not only the indemnifiers, but also against their parent companies (which were separate legal entities not responsible for the debts and liabilities of their subsidiaries). These registrations were also void.

Fourthly, Mr Garrett said that the security interests arose “as a matter of equity and law”. But by virtue of section 8 (1)(c) of the Personal Property Securities Act, such interests are not caught by the Personal Property Securities Act.

Fifthly, there was no “payment” due or owing to Mr Garrett nor was there any “obligation” to be performed for Mr Garrett which are the pre-requisites for the existence of a security interest under section 12 of the Personal Property Securities Act.

Sixthly, one of the agreements he sought to rely on under which the indemnity is said to have arisen, had not been signed.

What happened?

Unsurprisingly, the Court ordered amongst other things that Mr Garrett be restrained from registering or causing to be registered on the Personal Property Securities Register, any further financial statement and that he be restrained from enforcing or taking any further steps to enforce the purported security interests registered on the Personal Property Securities Register.

What could Mr Garrett have done?

There was no point in Mr Garrett pursuing his case. A good business law firm (like Leigh Adams Personal Property Security Lawyers) would have advised Mr Garrett that he would be better off keeping his money and not spending it on a hopeless case.

Mr Garrett could have used the money he spent on lawyers to enter into a composition or arrangement with his creditors under section 73 of the Bankruptcy Act 1966. Winding the clock back further, he could have engaged us to prepare a contract that did create a bona fide security interest in all the companies (including the parent companies).

The Personal Property Securities Register

It is a wonder that the Court in the Treasury Wines case did not comment further about the registrations effected on the PPSR.

Section 157 of the Personal Property Securities Act says that a person must not apply to register a financing statement or a financing change statement…. unless the person believes on reasonable grounds that the person described in the statement as the secured party is, or will become, a secured party in relation to the collateral (otherwise than by virtue of the registration itself).

There is a civil penalty of 50 penalty units for breach of this section. That’s $8,500.

Mr Garrett got off lightly. If a civil penalty had been ordered against him (and another Court may have been required to do this), then his bankruptcy would not have released him from it.

Amendment Demands and the Register

You don’t have to go to Court to amend the Register. Section 180 empowers the Registrar to give a secured party (say Mr Garrett) notice of a demand that the Registrar receives from the grantor that the grantee (Mr Garrett) amend the register in accordance with the provisions of the notice. The Registrar can also give a notice of demand to the secured party on his own initiative as well.

Where a notice of demand – also known as an amendment demand -is given to a secured party (whether by the Registrar or by the grantor) , section 181 provides that if the secured party does not make the change within five business days (or show cause satisfactory to the Registrar as to why the change should not be made within the same five days) then the Registrar must register a financial change statement amending the registration unless (section 181) the Registrar suspects on reasonable grounds that the ‘collateral’ described in the registration does secure a ‘payment’ or ‘obligation’ by a debtor to the secured party.

So if you want to avoid Court and use the Registrar, you have to be pretty sure that the registration is hopeless. Mr Garrett’s registration was hopeless. Why didn’t the grantor apply to the Registrar before going to Court?

Probably because Mr Garrett had a history of making meritless registrations and also had a history of vexatious litigant orders against him. One can surmise that the grantor did not want to spend the next few years applying to the Registrar week after week to take down the constant stream of registrations effected by Mr Garrett.

What next?

If you want straight talk on the Personal Property Securities Act and the Personal Property Securities Register – how it works and how to use it, then call us on 02 99640022 or email Leigh at enquiries@lalawyers.com.au. We get you there.