The Implications of Registering Late on the PPSR

It is a little-known amendment to the Corporations Act that tripped Doka up. Doka is in the business of leasing formwork equipment and had an ongoing trading relationship with Relux. Doka had delivered equipment to Relux before they got around to registering their security interests on the Personal Property Securities Register (PPSR).

Little did they know at the time that the Corporations Act 2001 had been amended to harmonise with the Personal Property Securities Act. The change to the Corporations Act 2001 was made for the purpose of preventing companies with knowledge of actual or impending insolvency from granting security over assets to friendly parties. It was never meant to catch out companies like Doka, but the law is clear, and there is no room for discretion. Here’s the abridged version of section 588FL:

• If a secured creditor fails to register its interest on the PPSR within 20 business days of the security agreement being created, and
• the debtor company (grantor) has administrators or liquidators appointed, or enters into a DOCA (Deed of Company Arrangement) within six months of registration on the PPSR, then
• the security interest will vest in the insolvent company and the secured creditor loses its goods.

This timeline of business transactions between Doka and Relux shows that time was not on Doka’s side.

• Before 1 January 2014: Doka delivered most of the equipment in question into Relux’s possession
• 20 February 2014: Doka registered 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.

The appointment of administrators was clearly within six months of the date on which Doka registered its security interest. The cut-off date in the Doka case was 21 January, being 20 business days before the registration of its security interest on 20 February.

Unfortunately for Doka, it had delivered the bulk of its equipment before 21 January 2014. Thus, it lost all this equipment, which represented the majority of equipment supplied.

The equipment they managed to save was from the deliveries made after they registered a security interest in their goods on the PPSR on 20 February.

How can I avoid this happening to my business?

While every business is unique, and circumstances will differ, we recommend these three strategies.

1. Contain the risk

If you choose to take the six-month risk outlined above, be sure to register everything on the PPSR as soon as possible. This way the risk is contained, and the clock starts ticking. Never wait until you have concerns about the financial stability of a customer.

2. Make a legal application

If you have a single or primary transaction, you can apply to the court under section 588FM of the Corporations Act to have a later time fixed for registration so that you are no longer at risk. This is, of course, expensive, and there is no certainty that the court will allow a later date to be fixed, particularly if it may prejudice the rights of other creditors.

3. Update and re-issue

Update and re-issue PPS compliant terms of trade as a new security agreement to all customers and make sure that registration is completed within 20 business days. This strategy can be used by companies who have an ongoing trading relationship, such as suppliers of goods with retention of title. You won’t be protected for past supplies, but the future will be secure.

If you think your business might be at risk, email us to organise a time to speak with our PPSR Specialists at EDX.  We can discuss options for protecting your interest in any goods or equipment you may have supplied.

For a detailed explanation of what happened with Doka and Relux, read the full judgement: Relux Commercial Pty Ltd (In liquidation) v Doka Formwork Pty Ltd.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.