No name found? Never heard of them.
At Worrells, secured creditors are a common stakeholder group we encounter. They are generally concerned about where their secured asset/s is located, and what is the external administrators’ intentions. Part of our role as external administrators is to review these security interests and confirm whether they have been perfected in accordance with the Personal Property Securities Act 2009 (PPSA).
A recent matter handled by the Worrells Victoria office has re-emphasised the importance for secured creditors to ensure their securities are properly registered on the Personal Property Securities Register (PPSR).
Background
Company A was the trustee of the Company A Trust (the Trust) and appointed Worrells as Voluntary Administrators. The director's intention was to propose a Deed of Company Arrangement (DOCA) to provide a better return to creditors than a liquidation would. For this reason, amongst others, we continued to trade Company A's business and use its encumbered assets.
Included in Company A's asset pool was a fleet of more than 20 motor vehicles. Most of the vehicles were acquired via finance and were subject to security interests registered by various lenders. Five of the vehicles were financed with Lender X.
Our initial searches of the PPSR on Company A and the Trust only identified security registrations over two of the five vehicles financed with Lender X. The security registrations over the other three vehicles were identified by VIN searches on the PPSR. These three registrations (the Problematic Securities) did not identify either Company A or the Trust as the grantor of the securities. The Problematic Securities instead listed the grantor as "No Name Found", accompanied by an incomplete sequence of Company A's ACN and the Trust's ABN.
Our next move was to determine whether the Problematic Securities were defective/unperfected, and what the implications would be if so.
What can make a security defective or unperfected?
Section 153 of the PPSA and Schedule 1 of the Personal Property Securities Regulations 2010 (Cth) (Regulations) requires that where the grantor of a security is a trust, the security must be registered against the ABN of the trust. Section 165 of the PPSA provides that a registration of a security interest will be defective if a search of the PPSR by reference only to the grantor's details is not capable of disclosing the registration. Section 164(1)(a) of the PPSA further provides that a security registration is ineffective if it contains a seriously misleading defect in any data relating to the registration.
The Trust being the grantor of the Problematic Securities means Lender X is required to have registered its securities against the Trust's ABN. Lender X failing to do so meant that we did not discover the Problematic Securities by searching the PPSR using the Trust’s ABN (nor even Company A's ACN).
Although we later discovered the Problematic Securities via searches of the vehicles' VINs, the registrations were defective and seriously misleading as the registration was not made in accordance with the PPSA and Regulations. The Problematic Registrations were therefore defective and the security interests unperfected.
What were the implications?
As the Problematic Securities were unperfected at the time of our appointment, they vested in Company A / the Trust pursuant to PPSA section 267. This meant that:
the three vehicles became unsecured assets of Company A,
Lender X could not enforce its securities,
we could deal with the vehicles without having to consider the outstanding finance owing to Lender X, whereby:
◦ we did not need to pay the vehicles' monthly finance payments to continue using the vehicles in the ongoing trade of the business, and/or
◦ we could realise the vehicles for the benefit of creditorsthe collective debt owing to Lender X (approximately $53,000) would rank as an unsecured debt and be bound by the terms of the approved DOCA.
◦ the debts owing for the other two vehicles still ranked as secured debts as those registrations were perfected and valid.
This scenario demonstrates the importance for lenders to ensure that their securities are properly registered in accordance with the PPSA and Regulations. Other common errors we see lenders make in their registrations which could impact their securities include:
registering only against the company ACN and not the Trust ABN where the company is trustee of a trust,
not registering against the collateral's serial number/VIN (where required), or inputting the wrong serial number/VIN, and
failing to register the security within 20 business days after entering the security agreement granting the security interest – this may only be an issue where the security interest was registered within 6 months before the grantor enters external administration.
If you or somebody you know is having financial difficulties, Worrells can help you understand the options available. For a no obligation and complimentary discussion, contact your local Worrells principal. Positive options start by having a conversation.
