Seriously! – When are PPSR registrations seriously misleading?

The Supreme Court of Victoria recently heard an application by a syndicate of lenders seeking a declaration that a PPSR registration made to perfect a general security interest (GSI) they collectively held to secure amounts advanced to Wasabi Energy Limited (administrators appointed) (Borrower) was not seriously misleading within the meaning of section 164(1)(a) of the Personal Property Securities Act 2009 (Cth) (PPSA).

The court declared that a registration made to perfect the security interest in question (the GSI) held for the benefit of multiple named secured parties, but which listed only one secured party, was not seriously misleading and so not ineffective by operation of PPSA section 164(1)(a).

The Supreme Court of New South Wales in Future Revelation Ltd v Medica Radiology & Nuclear Medicine Ltd [2013] NSWSC 1741 took a similar approach to the question of “seriously misleading”, emphasising that the primary test is whether the registration details are sufficiently complete that a search on PPSR would reveal the registration.

Background facts

The Wasabi matter involved a syndicate of 18 lenders (Syndicate) who lent money to the Borrower under a facility agreement (Loan) and held a GSI jointly over all-assets of the Borrower – there was no security agent/trustee. The Syndicate held one PPSR registration against Wasabi (First Registration) that included all 18 lenders in one secured party group (SPG). The registration erroneously included an end date, being the same date as the repayment date under the Loan (Registration End Date). The registration lapsed on the Registration End Date, and the Borrower was unable to repay the Loan. The Borrower entered voluntary administration 16 days later.

One lender only realised that the First Registration lapsed, and four days later lodged another registration (Second Registration), but only listed itself as secured party (not, in addition, the other 17 lenders in the Syndicate). This lender then sought to argue that only it benefited from the Second Registration as secured party, and could take the entire benefit of the GSI. This solitary lender then made a court application seeking orders under Corporations Act (CA) 588FM for the extension of the time to make the Second Registration for the purposes of CA 588FL, the Second Registration clearly not being made (as is required under CA 588FL) within 20 business days of the grant of the GSI.

The potential consequences of this argument for the other 17 (unregistered?) lenders in the Syndicate were enormous given Wasabi had entered voluntary administration, meaning that unperfected (in this case, unregistered) secured parties see their security interest “vest” in the Borrower, that is, unenforceable against the Borrower.

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