On 31 January 2014 the Personal Properties Security Register (PPSR) will mark two years in operation. By the time the PPSR started there was already a significant and very relevant body of legal commentary about its operation, all of which rightly emphasised the importance of perfecting security interests by registering them on the PPSR. Equally as important is making sure that the form of the registration is correct and compliant with the Act and Regulations, which set out in considerable detail on how a registered security interest should appear on the PPSR and what information it must disclose to be valid and effective.
The consequences of ineffective PPSR registrations are illustrated in two current liquidations in Worrells Melbourne.
In the first liquidation, a company operating a commercial plumbing business obtained finance to purchase an item of equipment after the commencement of the PPSR. The financier was granted a security interest over the equipment, which the financier registered on the PPSR within the time limit prescribed by the Act. On the date of our appointment the financier was owed $26,722.
It was apparent from the outset that there was a problem with the registration, as our initial searches did not find it. Once located, we determined that it was correct in all respects but for one very important detail – the financier had incorrectly disclosed the company’s director as the grantor of the security interest instead of the company. This was a major defect in the registration and resulted in the security interest being altogether ineffective. We sold the equipment for $12,500 and the financier’s only rights in the liquidation become those of an ordinary unsecured creditor.
In the second liquidation we encountered a similar issue, this time in relation to two motor vehicles financed by a company operating a tile and bathroom supplies and installations business. On the registration, the financier mistakenly disclosed the dealership that sold the vehicles to the company as the grantor, rather than the company. As with the other liquidation the consequence of the error means that the motor vehicles become unencumbered property of the company which will be sold in the course of the liquidation. The financier is owed $43,962. If the security interest had been registered correctly, it would have expected to be repaid as much as half of its debt from the sale of the motor vehicles. Instead, it will likely receive nothing.
Both of these examples involved financiers that specialise, and have considerable experience, in asset financing. Whatever the reasons for the defects in their registrations, both financiers have paid a high price for failing to comply with prescriptive requirements of the PPSR.