The Walrus has spoken

So this whole PPSA thing – do you register by ACN or ABN or what? And what if you get it wrong?

The Walrus has the answer…

 

The Accolade Wines decision

In a Supreme Court decision handed down earlier this week, a financier who had mistakenly registered a whole bunch of PMSIs by ABN instead of ACN approached the court to fix the resulting problem.

By that time, it had corrected all of its registrations by lodging ACN-based registrations instead. However, the new registrations were all lodged out of time, so the financier needed orders extending the time for registration.

 

Unfair prejudice, and the gigantic stuff-up

The court was only prepared to grant the extension of time orders if they would not “unfairly prejudice” third parties.

The sort of unfair prejudice at issue, the court said, would arise where an innocent third party had dealt with the customer in the belief (presumably formed after conducting an ACN-based search) that there was no perfected PMSI that would rank ahead of its interest.

In response to this concern, the financiers insisted that third parties these days don’t rely on ACN searches alone – they all know that you have to do a triple search, by ACN, ABN and company name.

Evidence was given of the notorious stuff-up back when the PPSA was first introduced and over 800,000 existing ASIC charges were migrated to the new PPS Register by ABN instead of ACN. Expert evidence was led that, as a result of this stuff-up, an industry practice had emerged of conducting a triple search.

The expert called to give this evidence was the chair of the excellently-named “Walrus Committee”, an austere assortment of academics and professionals who “meet regularly to discuss PPSA issues with the objective of suggesting solutions”. The Committee had authored, among other things, a report to the Attorney-General on the outcome of its review of the PPSA – known as “the Walrus Report”.

The Walrus Report had concluded that it had become “customary market practice” to conduct a triple search. To fortify this conclusion, the court was also taken to AFSA’s official fact sheet (which recommended a triple search), and two leading texts on the PPSA – one of which was co-authored by Counsel for the financier – which also endorsed multiple searches.

Evidence was also given that numerous third party PPS software packages advocate for triple searching by allowing all three searches to be done at once and, unsurprisingly, recommending that users of the software (who pay per search) do this as a matter of course.

 

The outcome

After hearing the evidence, the court found that a “reasonably prudent financier” would generally conduct all three searches, rather than relying on an ACN search alone. Any prejudice suffered by someone who had not done this would arise from their own imprudence, which could not be considered “unfair” prejudice.

This was tantamount to a finding that any prudent financier would have become aware of the original ABN-based registrations, even though they were technically registered incorrectly. In those circumstances, the court was satisfied that it would be “just and equitable” to make an order extending time so as to cure the late ACN-based registrations.

 

Take-away points

Some take-away points from this decision:

  • Newly-appointed liquidators wishing to identify the creditors of the company to which they have been appointed should search by ACN, ABN and company name.
  • If you are a financier, you should approach customer due diligence on the same basis – the Supreme Court has now determined that this is what a “reasonably prudent financier” would do.
  • If you are not sure whether your interest is a PMSI or not, it is okay to lodge two registrations – one claiming a PMSI and the other not. In this case, the court tacitly approved that approach, noting it had been taken “for more abundant caution”.

 

If you are ever in any doubt about anything PPSA-related, contact me or my partnerSina Kassra in our Corporate & Commercial team. Our teams know the PPSA back to front and can provide specific advice on which searches should be conducted, and how to interpret the results.

 

Further reading

See In the matter of Accolade Wines Australia Limited and other companies [2016] NSWSC 1023 for the full decision.

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