HHG Legal Group acted for the successful liquidators in Pozzebon (Trustee) v Australian Gaming and Entertainment Ltd, in the matter of Australian Gaming and Entertainment Ltd (in liq)  FCA 1034. Pozzebon confirms that there is nothing remarkable about the Personal Property Securities Act (PPSA) or related provisions recently inserted into the Corporations Act. There is certainly no reason to give the words of these statutes any exotic or unnatural interpretation: the words mean what they literally say.
In the case of Pozzebon, the applicant had a security interest in funds held in the respondent’s bank account. That security interest secured the respondent’s obligation to repay money which the applicant had lent it. The respondent then became insolvent, was placed under administration and later put into liquidation.
Section 588FL of the Corporations Act applies in these circumstances. Under that section, the administrators and/or liquidators of an insolvent company (or as in this case, its administrators and later, its liquidators) take the assets of that company free of any security interests which are not:
- “perfected” by possession;
- “perfected” by control;
- temporarily “perfected”; or
- “perfected” by a registration which took place within a particular period of time.
“Perfected” under the PPSA really just means “finished”: in other words, a security interest against specific collateral is “perfected” if the secured party has taken all necessary steps that the PPSA requires to let the whole world know that he or she (and anyone else with a similarly “perfected” security interest) has first dibs on that collateral upon the insolvency of the grantor (whose obligation to pay money or hand over goods has been secured against that collateral). Whilst there are four ways to “perfect” a security interest under the PPSA, registration is by far the most common way. Secured parties are therefore well advised to register their security interest in any case, rather than taking the risk of losing their rights at the very time when they will seek to enforce them: that is, when the grantor becomes insolvent.
However, that is only part of the take-home message in Pozzebon. Pozzebon also reminds us that mere registration may not be enough to protect security interests from “vesting” in administrators and liquidators of insolvent grantors (that is, becoming part of the general pool of assets available in the administration or liquidation of the grantor company). Rather, registration of a security interest might not be effective to save it from vesting unless it is done within the time prescribed in section 588FL, that is:
- no more than 20 business days after the date of the transaction which gives rise to the security interest; or
- at least six months before the company first comes under administration or is placed into liquidation.
In Pozzebon the relevant security interest was registered after both of those dates. It therefore vested in the administrators/liquidators of the insolvent grantor and the secured party reverted to the status of unsecured creditor. No amount of clever argument could rescue the security interest from that fate.
So the full take home message is: Register your security interests and register them quickly!
This is general information only, and does not constitute specific legal advice. Murray Thornhill is the Director at HHG Legal Group with the Litigation/Commercial Law team. Daniel Morris is a Senior Associate with the Litigation/Commercial Law team at HHG Legal Group. If you would like further information in relation to this matter or other legal matters please contact our office on Freecall 1800 609 945 or contact firstname.lastname@example.org.