The New South Wales Supreme Court affirms constitutionality of vesting under PPSA and registration against the company ABN of a corporate grantor is ineffective.
Brereton J of the New South Wales Supreme Court found that:
- A PPS registration against the company ABN of a corporate grantor is defective because it does not comply with the requirements set out in section 153(1) of the Personal Property Securities Act 2009 (Cth) (PPSA) as read with the relevant regulations.
- A PPS registration against the company ABN of a corporate grantor is ineffective under sections 164(1)(b) and 165(b) of the PPSA because a search by the grantor's details prescribed pursuant to section 153 of the PPSA (being the ACN of the corporate grantor) would not reveal the registration that was made against the company ABN of the corporate grantor. It does not matter that a composite search by a third party service provider, that includes the company ABN of the corporate grantor, would show the registration because the search of the PPS register by the relevant grantor details only would not show the registration.
- A PPS registration against the company ABN of a corporate grantor is ineffective under section 164(1)(a) of the PPSA because it is seriously misleading in that the defect would prevent a registration being disclosed by a properly formatted search in the relevant searchable field. It is unnecessary for a defect to be misleading to establish that anyone was in fact actually misled – it is the capacity or potential to mislead that is crucial (section 164(2) of the PPSA). Brereton J's finding that the PPS registration is ineffective under section 164(1)(a) is only relevant in the event that his finding on the effect of section 165(b) was overturned on appeal – if section 165 applies it is unnecessary to show that the registration is seriously misleading.
- Section 267 of the PPSA, which provides for the vesting of unperfected security interests in the grantor immediately before the grantor's winding up, administration or bankruptcy is not unconstitutional. It does not effect an acquisition of property other than on just terms because:
- it does not effect an acquisition of property at all, but rather prescribes a consequence of entering into a lease (or other relevant transaction) in certain circumstances, because the lease (or other relevant transaction) is made subject to the risk of vesting under section 267 and thus from inception constitutes a bundle of rights that is subject to this risk; and
- alternatively, even if it could be said that section 267 effects an acquisition of property, section 267 does not effect an acquisition within the meaning of paragraph 51(xxxi) of the Constitution; and
- section 267 is not directed towards the acquisition of property but rather the adjustment of the competing rights, claims or obligations between the holders of interests in personal property (being true owners, the holders of security interests and apparent owners).
- An order under section 588FM of the Corporations Act 2001 (Cth) (Corporations Act) to effectively extend the 20 business day period in section 588FL of the Corporations Act will not help a secured party whose grantor is already under administration, unless the security interest had been perfected before the appointment of the administrator. This is because most unperfected security interests vest in the grantor under section 267 of the PPSA immediately before the appointment, and an order under section 588FM of the Corporations Act will not reverse the vesting.
It is expected that the decision will be appealed.
Authors: Jock O'Shea, Partner; Tony Ryan, Partner; Emanuel Poulos, Partner; Bruce Whittaker, Senior Consultant; Paul Richter, Senior Expertise Lawyer.
