Section 588FL of the Corporations Act 2001 is a very powerful section when it comes to businesses registering a security interest under the Personal Property Securities Act 2009 , and in brief, provides as follows:
- If a secured creditor fails to register its interest on the Personal Property Securities Register (“the PPSR”) on the earlier of within 20 business days of the
- Security agreement being created or 6 months before the debtor company is wound up, then
- The security interest will vest in the insolvent company and the secured creditor loses its goods.
A security interest is an interest in personal property provided for in a transaction that, in substance, secures payment of money or performance of an obligation.
In the case of Relux Commercial Pty. Limited (In Liquidation) v Doka Formwork Pty. Limited [2014] VSC 570 the defendant Doka learnt the hard way what failure to register its security interest on the PPSR meant. This failure resulted in Doka losing most of the equipment is owned and had rented and delivered to Relux, due to that company going into liquidation.
The chronology of events was as follows:
- Prior to 1 January 2014: Doka delivers most of the equipment into Relux’s possession.
- 20 February 2014: Doka registers a security interest in its goods on the PPSR.
- 26 February 2014: Doka delivered more equipment to Relux.
- 31 March 2014: Doka made another equipment delivery to Relux.
- 7 April 2014: Relux went into administration.
- 16 May 2014: Relux was placed in liquidation.
In order for Doka to protect itself, it would have had to register its security interest within 20 business days of delivery of the first lot of equipment. As it stood, Doka was able to protect only that part of the equipment that was delivered after the security interest was registered.
The lesson to be learned from this case is to register your security interest on the PPSR as soon as possible or within the time limited by section 588FL, remembering that the time within which to register starts to run from the date that the security agreement creating the security interest is created.
To maximise your right to enforce the retention of title provisions in your trading terms, you must register the security interest that is created by your trading terms on the PPSR.
Seek professional guidance on how to protect your business assets by using the PPSR.
This article is for general information only and is not intended as legal advice. If you need specific help contact our office.
