How to avoid having to make an application to extend registration time under the PPSA
Re Carpenter International Pty Ltd  VSC 118 case deals with the s588 Corporations Act timing rules and s267 of the PPSA.
In this case, Carpenter bought live cattle from farmers through an agent, and exported them overseas. Administrators were appointed to Carpenter on the 24 March 2015, and 3222 head of cattle were the subject of competing priority claims.
DSL, as agents for the farmers, guaranteed Carpenter’s payment of the purchase price to the farmers and received a commission for doing so. Under their agreement with the farmers, when DSL paid out the farmers, DSL took an assignment of the farmers’ rights under the sale contracts, including applicable retention of title (ROT) provisions.
So there were 3 contracts in the whole transaction: an agency agreement between DSL (as agent) and the farmers; a sale agreement between the farmers and Carpenter; and an assignment of the farmers’ rights (including ROT rights) under the sale agreement to the agent. The assignment could only take place once the agent paid the farmers what Carpenter as purchaser owed the farmers.
DSL contended that they had a perfected security interest in some of the cattle and that Carpenter had no rights to those cattle. DSL registered its security interest within 20 business days of its payment to the farmers, being the date of the assignment to DSL of the farmer’s rights under the farmer’s sale contract to Carpenter. DSL did not register its security interest within 20 business days of its execution of the agency agreement that it had entered into with the farmers.
The issue in dispute was when did the security agreement that gave rise to DSL’s ROT security interest come into force? The court held that the source of DSL’s security interest was the contract it entered into with the farmers, not the date of the assignment of the farmers’ rights (including the ROT rights) under the farmers’ contract with Carpenter. The farmers’ contract with DSL “provided for” the interest in personal property even though the assignment had not yet taken place. See section 12.
It was also held that properly construed, the assignment did not create a new security interest. The security agreement came into force on the execution date of the agency agreement between DSL and the farmers, not the date of the subsequent assignment.
So this meant that an application to extend the PPSR registration time had to be made. That application was successful, but the case is important for other reasons:
As regards another vendor agent, CS, Carpenter argued that the contract it entered into with each farmer “only came into force” once Carpenter sent a final rejection list relating to the cattle to be purchased by it. It was only then that the contract became unconditional and binding. Carpenter supported this argument by relying on s 19 which states “a security interest is enforceable against a grantor in respect of particular collateral only if the security interest has attached to the collateral”. How can it attach if a rejection list is yet to be received? They might reject all of the cattle.
The court held that the 20 day registration time period under s 588FL (2)(b)(ii) runs from when the security agreement giving rise to the security interest comes into force – that is, when the agreement is executed and not when the security interest attaches or becomes enforceable against third parties.
As regards to CS, CS’s security interest was registered on the day of appointment of the administrators, although a few hours prior to the actual appointment. S267 (1)(b)(ii) was held to refer to the “time” of the s513C “day” (that is, the day on which the administration is taken to have begun). As such, CS’s security interest had not vested in Carpenter under s 267 of the PPSA.
Thus, the take home points include:
(1) The fact that one should register security interests on or before executing the relevant security agreement which gives rise to them.
(2) Ensure that risks associated with determining when a security interest arises are minimised when dealing with transfers of interests between parties, novations and assignments.
(3) In order to get this right, it is important to consider which document “gives rise to” or “provides for” the security interest.
(4) For example, master leasing agreements which “provide for” the parties to subsequently enter into separate leasing contracts in the future will themselves usually give rise to the creation of security interests. They are usually the operative documents, not the subsequent leasing contracts.
Leigh Adams Business Lawyers assists their clients in perfecting their security interests because we understand the registration times under the PPSA.
Call us today on (02) 9964 0022 or email firstname.lastname@example.org to protect your business assets.