With financially distressed businesses on the rise, secured parties must ensure that they have registered their security interests on the Personal Property Securities Register within time. This is crucial in order to avoid losing the security altogether, if the borrower/grantor commences insolvency.
The time limits imposed under section 588FL of the Corporations Act are as important as ever in light of the economic challenges ahead. If you are registering against a corporate grantor, Section 588FL of the Act requires the secured party to register their security interest within 20 business days of the security agreement - or more than six months before insolvency commences.
If you register outside of this time and either the grantor company is being wound up; an administrator is appointed; or a deed of company arrangement is executed, then any PPSA security interest which was registered against the grantor, vests in the grantor for the benefit of creditors.
This means that the secured creditor may completely lose the benefit of the security. Whilst Section 588FM does permit an interested person to apply to the court to seek an extension to time for registration, the court must be satisfied that the failure to register earlier:
- was accidental, or due to inadvertence or some other sufficient cause;
- is not of such a nature as to prejudice the position of creditors or shareholders; or
- on other grounds, it is just and equitable to grant relief.
The court will have close regard to the reason for the failure to lodge registrations, the steps that were taken since discovering the failure and whether any interested party is contending that they have acted or not acted in reliance on the relevant period having ended.
Secured parties must act promptly and diligently to maximise their prospects of maintaining a registered security interest, even when they are caught 'out of time'.
If you have a query relating to any of the information in this article, or you would like to speak with a member of Holman Webb's Commercial Recovery and Insolvency Team, please don't hesitate to get in touch today.