It is common practice for suppliers of goods on credit to enter into an appropriate supply contract with their customers and lodging a valid security interest over the customer in order to ensure that the goods supplied on credit are protected if, for example, the customer becomes insolvent.
When registering a security interest on the Personal Property Securities Register (PPSR), it is important to understand the time limits set out in section 588FL of the Corporations Act 2001 (Cth) (Act).
In the event time limits have not been met or mistakes have been made in the registration of a security interest, the supplier (being the “secured party”) must act quickly to properly register those interests and seek an extension of time under section 588FM of the Act.
An ineffective registration on the PPSR will be treated as if there was no registration in the first place and will make the security interest vulnerable to vesting (i.e. extinguishing an interest) under s 267 of the PPSA meaning that it becomes invalid and the security no longer exists.
Section 588FL of the Act
This section of the Act is concerned with whether the registration of the financing statement occurred before the following circumstances (each of which is referred to as the “critical time”):
(1) an order is made, or a resolution is passed, for the winding up of a company (liquidation);
(2) an administrator of a company is appointed; or
(3) the company executes a Deed of Company Arrangement.
The relevant time limits for registration of a security interest are the latest of the following:
(1) six (6) months before the critical time;
(2) twenty (20) business days after the security agreement that gave rise to the security interest came into force or the critical time (whichever is earlier);
(3) if the security agreement is governed under the law of a foreign jurisdiction, fifty-six (56) days after the security interest became enforceable in Australia or the critical time (whichever is earlier); or
(4) a later time ordered by the Court under s 588FM.
Extensions of Time under s 588FM
This section provides a mechanism where secured parties can apply to the Court to choose a later time to register a financing statement. It alleviates situations where a secured party has failed to register within the time limits in s 588FL.
Orders under s 588FM are discretionary and dependant on whether the Court is satisfied on at least one (1) of the following grounds:
(1) The failure to register the interest earlier:
(a) was accidental or due to inadvertence or some other sufficient cause; or
(b) is not of such a nature as to prejudice the position of the creditors or shareholders.
(2) On other grounds where it is just and equitable to grant relief.
Further Information
If you would like advice or assistance in relation to any Commercial matters, please contact our accredited business law specialists and Partners Justin Thornton on jthornton@marsdens.net.au and Rahul Lachman on rlachman@marsdens.net.au or otherwise by calling them on (02) 4626 5077.
The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.
