Correcting defective PPSA registrations: Commonwealth Bank of Australia v HM Aircraft Holdings Pty Ltd [2021] FCA 447
Posted on September 20, 2021
The facts
HM Aircraft Holdings Pty Ltd (HM Aircraft), operates a regional Australian airline. The Commonwealth Bank of Australia (CBA) financed the acquisition and refurbishment of aircraft, components of aircraft and other equipment by HM Aircraft. CBA was granted the following security interests:
- an AllPAP (no exceptions);
- a charge over each specific item of equipment, which included a purchase money security interest (PMSI).
Defects were identified in the registration of the securities, which had the potential to affect the perfection of CBA’s security interest. The defects in the registrations included errors in relation to the serial numbers, collateral class and marking the purchase money security interest field.
The Court observed that the defects were due to “inadvertent mischaracterisations” by CBA employees of the asset class or category, failure of employees to properly appreciate the Personal Property Securities Regulation 2010 (Cth) and issues with the software used by CBA.
In order to remedy the defects, CBA registered new registrations but also applied to the Court for orders to ensure that the priorities afforded by the first set of registrations were not adversely affected. Orders were sought as follows:
- an extension of the dates in respect of registration of security interests (pursuant to ss 588FM(1) and 588FL(2)(b)(iv) of the Corporations Act 2001 (Cth) (Act)); and
- an extension of the number of days for CBA to have lodged a financing statement on the register (pursuant to s 293(1)(a) of Personal Property Securities Act 2009 (Cth) (PPSA).
Extension of registration dates - s 588FM(1) and s 588FL(2)(b)(iv) of the Act
CBA applied to the Court to extend the time for its security interests to be registered (to beyond 20 business days of the date of the relevant security agreement). If CBA’s security interests were correctly registered within the extended time limit, then its interests would remain enforceable in the event of HM Aircraft’s liquidation within 6 months of the registration date.
In determining CBA’s application, the Court considered the relevant sections of the Act which provide that the Court may make the orders sought if:
- satisfied that the failure to register the collateral earlier was accidental or due to inadvertence or some other sufficient cause;
- the failure will not prejudice the position of creditors or shareholders.
Justice Beach observed that the causes of the errors were each accidental or due to inadvertence. His Honour also considered if the failure prejudiced the position of creditors or shareholders, and held that the extension of time did not do so.
Orders were subsequently made fixing certain dates as the registration times for the collateral, but also so as to avoid any potential prejudice to creditors, His Honour also ordered that any liquidator or administrator have liberty to apply discharge or vary the order, if winding up or administration of HM Aircraft occurred within six months of the dates of registration.
Super priority – s 293(1)(a) of the PPSA
A PMSI has a “super priority”: a priority over security interests and other purchase money security interests registered in respect of the same collateral, even if registered prior to that purchase money security interest.
As CBA failed to lodge its registration on the PPSR within 15 days of HM Aircraft obtaining possession of the goods, it was disentitled to the super priority (s 62 of the PPSA). Accordingly, the default priority rules in s 55 of the PPSA would apply, and priorities would be determined in the order in which the security interests were registered or perfected.
Given the significance of CBA’s failure to properly register within the time periods afforded, an order pursuant to s 293 of the PPSA extending time was also sought. In considering the application, Justice Beach observed that:
- the concepts of inadvertence and accident have the same meaning as in s 588FM of the Act; and
- in most cases it would not be possible for the security interest holder to show there is no prejudice to other parties following an extension of time. There was no prejudice nor reliance in this case as there were no other security interests over aircraft the subject of CBA’s security interests, but things could have been very different had there been other interests registered.
Justice Beach made an order pursuant to s 293 of the PPSA extending the time for CBA to have registered its purchase money security interests, such that CBA’s registration falls within s 62.
Key takeaways
Creditors should ensure that their security interests are registered correctly on the PPSR and within the required time limits. If you fail to do so, then you need to carefully and promptly consider if there is merit in applying to the Court for appropriate orders.
Lynch Meyer’s Insolvency and Restructuring Team are experienced in dealing with complex litigation and here to assist with all aspects of PPSR, including registration and disputes. Please contact Alice Carter of Lynch Meyer Lawyers’ Insolvency and Restructuring Team if you wish to discuss.
