An SMSF lender whose security interest in the corporate borrower’s personal property was not registered on the PPSR for five months after being entered into the lost the charge upon liquidation: Pozzebon v Australian Gaming and Entertainment  FCA 1034
Section 21 of the Personal Property Securities Act 2009 (Cth) (PPSA) provides for perfection of security interests. In many situations this will occur where a security agreement has been entered into and the collateral has been registered on the PPS Register.
Section 267 of the PPSA provides for unperfected security interests to vest in the grantor upon insolvency. In a secured loan scenario, this occurs when the borrower goes into liquidation and the lender has not perfected its security interest.
Section 588FL of the Corporations Act 2001 (Cth) (Corporations Act) provides that security interests the subject of security agreements perfected by registration only (there are other means to perfect, such as by control), vest in a company which suffers an insolvency event, if the insolvency event occurs within six months of the making of the security agreement and registration of the security interest on the PPS Register did not occur within 20 business days of the making of the security agreement.
The lender in Pozzebon registered its security interest well after the 20 day requirement. The borrower suffered an insolvency event within six months of registration of the lender’s security interest. Both of these facts brought the security interest within the ambit of Section 588FL of the Corporations Act.
The Court noted that “the terms of s 21(1)(b) of the PPSA are unambiguous – attachment and enforceability plus one of the final means set out in s 21(2) of the PPSA (namely registration or possession or control) are necessary requirements for perfection of a security interest.”
The lender’s only means of perfection was by registration and so the security interest was not valid and enforceable against the insolvent borrower.
A security agreement is not enough – you need to register your interest on the PPS Register as soon as possible. You run the risk in lending to impecunious borrowers that your security in personal property may be invalid and unenforceable if the borrower suffers an insolvency event within six months of the security agreement.