Lessons from one of the first PPSA cases

The Personal Properties Securities Act 2009 (Cth) (“PPSA”) became operational on 30 January 2012. "On 5 July 2012 the Federal Court handed down its decision in one of the first cases under the new legislation. The case involved the collapse of the Hastie Group of companies” 1

Some important lessons can be learnt from the case by suppliers and their accountants, lawyers and other professional advisers who carry the responsibility to advise their clients on what they need to do to properly secure themselves. There are also valuable lessons that can be learnt about the need to establish appropriate procedures in the event of a secured parties’ customers being declared bankrupt or being put into administration or liquidation.

Facts

  • When an Administrator was appointed to the Hastie Group they had to identify and match the plant and equipment of the Company having a value of $6.4 m. to the claims that had been lodged by 995 secured parties.
  • Many of the claims that had been lodged were in generic terms – and accordingly were not helpful to the Administrators.
  • Nearly 80% of creditors that the Administrator wrote to try and obtain details of their claimed security interests either failed to respond or only responded in general terms.
  • After advertising in newspapers and writing to creditors, 77% of the assets remained unclaimed.

Held

After seeking directions from the Court, the Administrators were authorized to dispose of the equipment with the proceeds of disposal (after payment of costs) to be retained for 3 months and then distributed in the ordinary course of the administration. (ie effectively to the banks and to the senior secured parties).

Lessons to be learnt

  1. When a secured party registers their interest on the PPS Register, they should as far as possible ensure that their registrations specifically identify and describe the goods that are the subject of their registration. It is therefore essential that in the course of registering a security interest the “Collateral Details” and the “Description of Collateral” sections of financing statements be correctly completed and be completed in a timely manner to ensure that the security interests claimed are enforceable.
  2. Where a person has registered a security interest on the PPS Register they should ensure that they have systems and procedures in place:
    1. That will alert them quickly to the default and/ or the appointment of an administrator or liquidator to one of their customers and
    2. That will enable them to respond promptly in clear and accurate terms (with supporting evidence if needed) to any enquiries that may be raised by an administrator or by the liquidator of the defaulting customer. Failure to respond in such manner could result in the complete loss of a creditor’s claimed security interest.


PS Law
Philip Sheezel



Discalimer

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