Extensions of time to register PMSIs under the PPSA: It is a lack of prejudice universally acknowledged - Securities

This week's TGIF considers In the matter of Duke Contracting Australia Pty Ltd [2017] NSWSC 767 where the New South Wales Supreme Court considered how a secured creditor seeking an extension to register a PMSI can demonstrate that the extension would not prejudice other secured creditors.

BACKGROUND

This decision concerned a finance company (Lender) seeking an order pursuant to s 293(1)(a) of the Personal Property Securities Act 2009 (Cth) (PPSA), extending the time within which to perfect a purchase money security interest (PMSI).

The Lender had been granted a chattel mortgage over an excavator by the purchaser (Grantor), and the Lender needed the extension in order to maintain its PMSI super-priority in respect of that excavator.

The need for an extension arose because the Lender registered its PMSI against the Grantor's ACN, but not against the ABN of the trust of which the Grantor was trustee. Minor errors of this kind can have serious consequences for the priority of security interests, as explored in our earlier TGIF: To err is human – New South Wales Supreme Court lets financier fix 200 plus flawed PPSA registrations.

Relevantly, in deciding whether to grant an extension of time under s 293(1)(a) of the PPSA, the Court must consider:

Whether granting additional time would prejudice the position of others, including other secured parties, creditors or shareholders; and
Whether any person had acted in reliance on the period of registration having ended.

RESULT

The Court extended the time for the Lender to register its PMSI by 70 business days because the Court was satisfied:

The prejudice would have no effect on the position of unsecured creditors; and
Any prejudice and reliance on the part of the only relevant secured creditor – a major bank holding a registered security interest over all present and after-acquired property of the Grantor – was not such as to require the refusal of the Lender's application.

Brereton J held that the prejudice to the major secured creditor was in this case inconsequential because:

Prejudice will be significant when coupled with reliance. Here "reliance" contemplates a lender taking a security interest over property in the belief that there was no perfected PMSI that would trump its interest. His Honour considered it likely that the secured creditor would have searched both the ABN and ACN and so discovered the initial PMSI registration;
The secured creditor would be more concerned with determining whether the Grantor had granted general security interests to other financiers, as opposed to PMSI registrations relating only to specific collateral; and
The secured creditor was notified of the proceeding and had reviewed its security position, and elected not to appear or to make any submissions establishing such prejudice or reliance.

COMMENT

The decision emphasises the low threshold for an applicant to establish a lack of prejudice when seeking an extension for the registration of a PMSI. The Court's reasoning suggests, in effect, a practical shifting of the onus of proof onto other secured parties to demonstrate prejudice or reliance to defeat the extension application.

Secured parties notified of such applications may need to participate actively in those applications and show some proof of reliance if they decide it is necessary to preserve their priority over the widest pool of assets.

On the other hand, this decision indicates there is significant scope to obtain extensions to rescue a PMSI not registered in time. The cost of the extension application may be well worth the priority benefit obtained.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.