The first Australian case dealing with the Personal Property Securities Act 2009 (Cth) (“PPSA”) has recently been decided by the Federal Court of Australia. The case of Carson, in the matter of Hastie Group Limited (No 3)  FCA 719 shows why it is important for secured parties to have procedures in place that enable them to respond promptly to requests for additional information.
The much anticipated PPSA commenced operation on 30 January 2012. The PPSA has wide ranging implications for Australian businesses. While most businesses are still getting their heads around the PPSA, even those that have registered security interests on the Personal Property Securities Register (“PPSR”) could be at risk of losing their priority position if they fail to respond promptly to an administrator’s request for additional information.
A recent decision of the Federal Court indicates that registration alone is not enough to protect a security interest in all cases. Secured parties with interests registered on the PPSR, who do not respond adequately to urgent notices from an administrator, may find that an administrator is justified in selling the secured assets and distributing the proceeds of sale in the ordinary course of the administration.
In May 2012, administrators were appointed to the Hastie Group. At the time of appointment, the relevant Hastie Group companies held a large number of individual items of plant and equipment at 36 locations around Australia.
The PPSR contained 995 registrations against the Hastie Group companies. The administrators found it difficult to determine what items of plant and equipment each of the security interests related to because many of the PPSR registrations used general wording and many other transitional interests had not been registered.
The administrators wrote to each of the secured parties requesting additional information in relation to the particular items of plant and equipment protected by their registered (or transitional) interests. Approximately 80% of the secured parties failed to adequately respond to the correspondence within three weeks. Of the creditors who did respond, many failed to adequately particularise the relevant equipment or provide evidence of their underlying security agreement(s).
The administrators applied to the Federal Court for directions to allow them to dispose of the plant and equipment.
The Court held the administrators were justified in treating the unclaimed plant and equipment as property of the Hastie Group and selling the plant and equipment because:
the administrators had taken numerous steps to identify the plant and equipment that was potentially subject to security interests or other claims;
- the descriptions used in many of the PPSR registrations did not identify the particular items of plant and equipment to which they related and the continued existence of unregistered transitional security interests in relation to many other items of plant and equipment made the identification of such interests difficult; and
- the sites leased by the Hastie Group were incurring significant rental costs and were, for the most part, only being maintained by reason of the existence of plant and equipment at those sites.
However, before dealing with the proceeds of the auction, the Court required the administrators to:
- publish advertisements in national and state-based newspapers advising of the proposed auction;
- hold the proceeds of sale on trust for 3 months following the sale of the items; and
- notify secured parties/creditors of the auction and the terms on which the proceeds of sale were being held.
At the end of the 3 month period, the auction proceeds would be applied in the following order:
- towards the payment of administrators' costs incurred in realising the unclaimed plant and equipment;
- towards any valid claim in respect of the plant and equipment; and
- otherwise in the ordinary course of the administration of the Hastie Group.
Implications for your business
The decision in Hastie Group is a warning to secured parties/creditors:
to have appropriate policies and procedures in place to ensure they can respond adequately and promptly to urgent notices from insolvency practitioners seeking additional information about registrations recorded on the PPSR and transitional security interests; and
to keep their Secured Party Group contact details up to date on the PPSR to ensure they receive such notices.
If you receive such a notice please contact a member of DibbsBarker’s National PPSA Team immediately, so that we can work with you to avoid any potential sale of secured assets or loss of sales proceeds. We can also assist in drafting and implementing procedures to ensure your business is equipped to respond to urgent requests.
For more information, please contact:
T +61 2 8233 9550
F +61 2 8233 9555
T +61 7 3100 5061
F +61 7 3100 5001
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