If you have a need for speed, don’t allow this to compromise the correct registration of your PPSR security interest

In Rohrt, in the matter of Rose Guerin and Partners Pty Ltd (in liq) v Princes Square W24NY Pty Ltd,[1] the Federal Court of Australia held that as BMW failed to correctly register their security interest in a 2017 Ferrari GTC4 Lusso (by registering against the ACN of a corporate trustee but not against the ABN of the trust), a liquidator’s disclaimer of the Ferrari was a nullity.

On 22 June 2018, Rose Guerin and Partners Pty Ltd (in liq) (the Company) as trustee for the Rose Guerin and Partners Trust (the Trading Trust) entered into a chattel mortgage with BMW in relation to a 2017 Ferrari GTC4 Lusso vehicle (the Ferrari), with BMW’s interest in the Ferrari registered on the Personal Property Securities Register (PPSR).

On 19 December 2019, administrators were appointed to the Company, and the Company was placed into liquidation on 5 February 2020. As at 10 February 2020, the amount owing to BMW by the Company was $465,633.73.

On 11 February 2020, BMW received an email from the liquidators of the Company with a letter and a ‘Notice of disclaimer of onerous property’ which stated, inter alia, that the liquidators had formed the view that there was unlikely to be any equity in the Ferrari and that the liquidator, ‘for the purposes of paragraph 568A(1), give notice that [he] disclaim[s] the [Ferrari]’ (the Disclaimer).

On 27 May 2020, the liquidators of the Company caused a warrant to seize the books and records of the Company to be executed and, in the course of that warrant being executed, the Ferrari was seized.

The liquidators subsequently brought the current application seeking inter alia declarations that BMW’s PPSR registration and the Disclaimer were each defective and BMW’s security interest in the Ferrari vested in the Company.

BMW’s PPSR registration

BMW registered its security interest in respect of the Ferrari against the Company’s ACN, rather than against the ABN of the Trading Trust.

The liquidators submitted that, to which BMW conceded and the Court agreed, the registration of its security interest in the Ferrari was defective as it was not registered consistently with sections 165 and 153 of the Personal Property Securities Act 2009 (Cth) (the PPSA) and clause 1.5(1) of Schedule 1 of the Personal Property Securities Regulations 2010 (Cth) which require registration against the ABN of a trust (as grantor).

As a consequence of the defective registration, the liquidators submitted that, to which BMW conceded and the Court agreed, by virtue of sections 267(1) and (2) of the PPSA, BMW’s security interest was unperfected and the security interest ‘vest[ed] in the grantor’, (namely, the Company) ‘immediately before’ the date of the commencement of the administration of the Company.

The practical effect of this is that the unperfected security interest was transferred to the Company and BMW had no further security interest in the Ferrari.

The liquidator’s disclaimer

Section 568(1)(d) of the Corporations Act 2001 (Cth) (the Act) stipulates that a liquidator may disclaim the property of a company that consists of ‘property that may give rise to a liability to pay money or some other onerous obligation’.

The Court found that the appointment of the administrators on 19 December 2019 (which resulted in the vesting of BMW’s security interest in the Company) had the immediate effect that the Ferrari (as distinct from obligations owed by the Company) could not give rise to a liability to pay money. As a consequence, the Company’s obligations to repay BMW pursuant to the chattel mortgage were not responsive to the basis of the liquidators’ notice of disclaimer.

The Court went on to state that ‘some other onerous obligation’ conveys an obligation that is separate or distinct from, or different or additional to, the other obligation described in section 568(1)(d), being ‘a liability to pay money’.

Accordingly, and as set out above, while BMW has a personal claim against the Company and remains free to assert that right, BMW did not have a priority claim in respect of the Ferrari and the Ferrari was accordingly, unencumbered. The Court found that the Ferrari had a value exceeding $300,000 and that the Ferrari was clearly not an ‘onerous obligation’ because of this, even factoring maintenance costs such as ongoing storage, weekly battery recharging, regulator servicing and insurance.

The Court therefore concluded that to the extent the notice of disclaimer purported to disclaim the Ferrari, the notice of disclaimer was void, of no effect and a nullity.

Conclusion

1. 1. Take care to correctly register a security interest on the PPSR and remember that if the grantor is a corporate trustee, don’t forget to register against the ABN of the trust.
   2. A disclaimer issued pursuant to section 568 of the Act must comply with subsection 568(1) or the disclaimer may be a nullity.

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Authored by:

Scott Couper, Partner
Rachel Zagorskis, Associate

[1] [2021] FCA 483.