Do you actually have a registerable interest? – the PPSR and consequences of improper lodgements.
Posted on February 15, 2024
The introduction of the Personal Property Securities Register (PPSR) in 2009 has been the source of much confusion for its users over the years.
While in theory a publicly accessible noticeboard setting out all registered security interests against a particular person or entity is an ideal solution, it presents its own unique issues. One such issue concerns the consequences of inaccurate and / or invalid registrations.
The existence of a false or inaccurate registration on the PPSR can have serious consequences for a business or person.
As a refresher, an interest can only be registered on the PPSR if a valid security interest exists. That requires:
- a person or entity (referred to as a “Grantor”) granting a security interest over personal property – put differently, the Grantor must consent to the security interest;
- written terms; and
- the security interest must secure the repayment of a debt or performance of some sort of obligation.
Security interests which are registerable on the PPSR will commonly be seen in transactions involving a secured car loan, hire-purchase agreements, retention of title arrangements, the supply of goods on credit, and some lease situations.
While AFSA and the Registrar of Personal Property Securities (Registrar) do their best to oversee, maintain and regulate the PPSR, it is nevertheless a user-driven device, and so it is capable of misuse from time to time.
The Registrar, under the Personal Property Securities Act 2009 (Cth) (PPSA) is empowered to do anything necessary to appropriately maintain the PPSR, including:
- investigate potential misuse;
- initiate proceedings for certain alleged breaches of the PPSA (including seeking the imposition of penalties); and
- remove unreliable registrations from the PPSR.
The Federal Court of Australia recently considered the first proceedings initiated by the Registrar for alleged breaches of the PPSA: Registrar of Personal Property Securities v Brookfield [2024] FCA 29 (Brookfield). Brookfield marks the first time the Registrar has sought to impose penalties against a user of the PPSR.
In Brookfield, 9 separate registrations were made on the PPSR between 2016 – 2022 by Mr Brookfield in relation to the same transaction / personal property. The Registrar removed the registrations, on the basis that there was insufficient evidence to support any security interest.
Despite removal, Mr Brookfield continued to lodge registrations. The Registrar ultimately formed the view that, given the number of unsupported registrations that had been made, Mr Brookfield had breached the PPSA and so the Registrar commenced proceedings in the Federal Court seeking to impose penalties against Mr Brookfield in respect of the breach.
The key issue for the Court’s determination was whether or not Mr Brookfield held a “reasonable belief” that he was a secured party. Having regard to:
- the contractual terms of the transaction which Mr Brookfield said gave rise to the security interest;
- the significant correspondence between Mr Brookfield and the Registrar between 2020 and 2022 in relation to the unsupported security interest;
- the warnings that the Registrar had given about the potential imposition of penalties,
the Court was of the view that Mr Brookfield’s belief that he held a valid security interest was unreasonable, such that there had been a contravention of the PPSA. The Court imposed a civil penalty against Mr Brookfield in the sum of $30,000.
While facts of Brookfield delve into the “extreme”, it is nevertheless a reminder for all users of the PPSR to ensure that supporting information exists and is maintained in respect of any registration made to avoid investigation, and in some cases Court action, by the Registrar.
If you have any questions about the PPSA and PPSR, or need assistance to determine whether you have a registerable security interest, please do not hesitate to contact Alice Carter or Georgia Gray of our Credit Management Team.
