Who will win in a PPSA dispute over an unperfected security interest? Part two
I recently posted about a case dealing with an unperfected security interest under the Personal Property Securities Act, 2009 ("the PPSA").
In Pozzebon (Trustee) v Australian Gaming and Entertainment Ltd, in the matter of Australian Gaming and Entertainment Ltd (in liq) [2014] FCA 1034, the Federal Court of Australia delivered another decision confirming that a failure to perfect a security interest properly in the shadow of insolvency, will result in the vesting of the personal property in the insolvent estate.
Regular readers will recall that the PPSA introduced concepts of 'attachment' and 'perfection'.
The interest of a creditor in personal property 'attaches' to the property when the relevant financing transaction occurs.
However, the security interest remains 'unperfected' until the person claiming the security interest takes further steps to perfect their interest.
BackgroundMr and Mrs Pozzebon are the joint trustees of the Pozzebon Family Superannuation Fund. They loaned $250,000 to Australian Gaming and Entertainment Ltd (AGE) on 24 December 2013.
The money was paid over and a security agreement was executed that day.
As a result, the security interest 'attached' to the relevant personal property on that day.
However, the security interest was not registered on the Personal Property Securities Register ("PPSR") until 19 May 2014.
Seven days later, on 26 May 2014 (five months after attachment of the security interest) AGE was placed into voluntary administration. It was placed into liquidation on 1 July 2014.
At the time of liquidation, AGE had $860,000 standing to its credit in a bank account. Nearly $350,000 (including accrued interest and costs) of this fund was the personal property over which the parties were fighting.
Section 588FL of the Corporations Act 2001 (Cth) (Corporations Act) relevantly provides that if a company is placed into administration or liquidation (insolvency event) and a security interest may be perfected by registration (and by no other means), then if registration did not occur within twenty business days of attachment and an insolvency event occurs within six months thereof, the interest in the personal property vests in the company in administration or liquidation.
Similarly to the case about which I posted yesterday, unless the lender in this case could demonstrate 'perfection' of its security interest by means other than registration, the personal property sought to be secured would vest in the liquidator because it was not 'perfected' in time.
The security interest holder was unable to show that it had possession or control of the relevant collateral. It was also unable to prove temporary perfection of its security interest.
Collier J noted at paragraph 35 that:
The substance of the applicant
