What are the Courts deciding regarding the PPSR?

After 11 years, I thought it worthwhile to share a general (and over simplified) summary of the Court’s decisions when deciding PPSR matters.  As with any piece of new legislation, there has not been a shortage of Cases to decide how this legislation should be interpreted.  In many cases, it is a ‘winner takes all’ outcome.  Either the owner gets to keep their property or the Insolvency Practitioner gets to keep it.  There is rarely an outcome that lies in between.

Court Case type 1 “Woops – I made an error Your Honour!’’

Court applications to correct errors have been the bulk of the legal cases.  In fact, there continues to be a seemingly endless stream of them.  Typically, an entity will have performed many registrations only to subsequently discover that they are wrong.  Proceeding to Court to rectify them is an option.  Typical reasons include:

·         Not selecting the PMSI (super priority);

·         Registering the grantor (customer) incorrectly, e.g., registering a company incorrectly by its ABN instead of by its ACN;

·         Not registering the Trust, just the trustee;

·         Registering out of time; and

·         Forgetting to register at all.

In a very public forum, businesses are regularly spending hundreds of thousands of dollars in legal fees going to Court and requesting that past errors be rectified.  It’s an expensive and embarrassing process that could be avoided by performing a correct registration for $6 in the first place.  The errors committed could have been avoided with even the most basic of PPSR knowledge.  Further, a creditor can still oppose an application, thereby jeopardising the outcome.

One of the first PPSR Court cases was Forge Group Power v General Electric, which dealt with the matter of simply forgetting to register.  Failing to make a $6 registration saw the owner lose equipment worth around $50 million to the Insolvency Practitioner.

Moral of the story:  Be aware of when you need to register. Seek expert advice upfront.

The landmark case for this is All Leasing v One Steel Manufacturing.  It is the benchmark for what will happen if you register your customer incorrectly.  In this case, a $23 million asset was lost to the Insolvency Practitioner simply because the customer (being a company), had been registered by their ABN rather than their ACN.  This is all it takes for a mistake to cost millions.

The logic being that if a customer is not registered correctly, then you cannot search the PPSR by its correct identifier (in this case by the ACN) to locate the registration.  This does not enable someone when searching the PPSR by the correct identifier to discover all registrations.  The PPSR only works if, when you search it, you can locate all registrations made against that entity.

Moral of the story:  Be aware that there are multiple identifiers for a myriad of different business types.  This is not a DIY exercise, so seek help!

There are a number of cases analysing this question.  Typically, this occurs in the hire and leasing industry.  If an asset is hired for more than 2 years, then it is defined as being a ‘PPS Lease’ and must be registered.  If it is not a PPS Lease, then it does not need to be registered.

So, the question often before the Courts is – “Is this a PPS Lease”?  The answer is not always straightforward.  In the recent case of Gold Valley Iron v OPS Screening & Crushing Equipment, a monthly hire was not registered as it was less than two years.  However, the inclusion in the trading terms of an option to purchase by the hirer was deemed by the Court to render the transaction as being a Hire Purchase (HP) Agreement and not a hire.  Being an HP Agreement, it should have been registered.  The asset owner once again lost to the Insolvency Practitioner.

Moral of the story:  When in doubt – register!   It only costs $6.

We appreciate that selecting a few cases to demonstrate a pattern in Court outcomes is fraught with difficulty.  Every case turns on its own facts and  it’s difficult to draw sweeping conclusions from just a few cases.  As the legislation is only 11 years old, there are still many matters yet to be tested.  But the common denominator in all of these Court cases is that businesses should register when in doubt and seek expert advice if uncertain.

In my observation, if you get a registration wrong, the Courts will follow the letter of the law in deciding the outcome, an outcome that could prove incredibly expensive versus the cost of registering.

Registrations that have errors (or have not been done at all) are invariably a result of a reluctance to invest upfront the money, time and engage the experts.  Also, staff changes often result in valuable intellectual property being lost which can lead to a deteriorating quality of registrations over time, or registrations simply not being done at all.

At EDX, our philosophy is ‘do it once – do it right!’  Invest the money and the time upfront to create registrations to help reduce the risk of costly hassles and things going wrong.

At TCS we appreciate that every case is different so we work with our clients on an individual basis, embracing partnerships such as Equifax, to ensure the best outcomes. Talk to us today about PPSR and other services that can assist your business.

This Article was supplied by Andrew McLellan Director EDX Registration Services from Equifax