Timing is everything securing rights under PPSA

The significance of timely registration of security interests under the Personal Property and Securities Act (PPSA) has been delivered in the recent case of Relux Commercial Pty Ltd (in liq) v Doka Formwork Pty Ltd.

The case required consideration of Section 588FL of the Corporations Act. Section 588FL provides that certain security interests under the PPSA not registered on the Personal Property and Securities Register (PPSR) within a certain period vest in the company that is being wound up.

This case involved the following facts.

  • Relux rented formwork equipment from Doka Formwork Pty Ltd (Doka) and operated a formwork construction business.
  • Relux Commercial Pty Ltd (In Liquidation) (Relux) appointed administrators on 7 April 2014, and had possession of the formwork equipment. The administrators were appointed liquidators on 16 May 2014 at a creditors meeting.
  • From March 2013 Doka leased the formwork equipment to Relux for indefinite periods. But, only on 20 February 2014 did Doka register a PPSR security interest.
  • Formwork equipment was provided to Relux in 2013, while some had been leased in February and March 2014.
  • The liquidators applied to the court for a decision on who had superior rights and interest in the formwork equipment.

His Honour determined that Doka’s leases were ‘PPS leases’ under Section 13 of the PPSA because they were for indefinite periods, and Doka’s business leased such goods to the public.

His Honour then considered the Corporations Act, Section 588FL, regarding the timing of Doka’s registration.

Section 588FL provides a PPSA security interest vests in a company where, at the time of administration or liquidation:

(a) The security interest is enforceable against third parties.

(b) The security interest is perfected by registration.

(c) The security registration time is after the latest of:

  1. six months before the administration or liquidation of the company
  2. 20 business days after the security interest was created, or the day of administration, or liquidation (whichever is earliest)

His Honor determined that (a) and (b) applied to this case and that the dates following  applied to Doka’s registration:

  • Six months before the critical time of 7 April 2014 (Appointment of Administrators), was 7 October 2013; or

The earlier of:

  • 20 business days after the security agreement that gave rise to the security interest came into force was 21 February 2014; or
  • The critical time of 7 April 2014.

Given Doka registered its interest on 20 February 2014, the court found that any formwork equipment leased prior to 21 January 2014 (i.e.. 20 business days before registration) and after 7 October 2013 (i.e.. 6 months prior to the administration) would vest in Relux. That is, despite Doka being the lawful owner of the formwork, it lost its formwork equipment to Relux’s liquidator.

The court found that the leases in February and March 2014 was covered by Doka’s security registration, and therefore Section 588FL didn’t apply—as it was registered in time.

This case is the second to prove to be a substantive judicial consideration of the PPSA (for the first, Maiden Civil case, click here). The take-home message is: ensure security interests are registered within 20 days of creation, or risk losing those assets—particularly if the leasee entity is placed into external administration within 6 months of a late registration.

– See more at: http://www.worrells.net.au/eUpdateNewsletters/ViewArticleListing.aspx?ArticleId=5618#sthash.5lq4D0qX.dpuf

Crowdfunding Capital Some Key Points

A new report outlines the recommendations to enable a different capital raising method.

The key points of proposed crowdfunding  laws are:

  • Equity crowdfunding will have legislative sanction under the Corporations Act.
  • Existing company structures will be adjusted to raise crowd equity, rather than create a new type of entity.
  • Intermediaries, such as website operators, will be regulated and most likely must be licensed.
  • Whilst crowdfunding has a natural home in the start-up space, the Federal Government is also considering making it available for mature enterprises.
  • Basically, crowdfunding is a company seeking capital funds, particularly early stage capital, offering its equity to a potentially large number of investors (the crowd) in return for cash. Those investors are inevitably sought through a website, the operator of which acts as an intermediary between the crowd investors and the company seeking the capital.

The detail of the government’s legislative framework for crowdfunding has not yet been released but the CAMAC report put forward the following:

  • Placing a cap on an issuer’s fundraising – no more than $2 million in any 12 month period.
  • Introducing caps on investment levels – $2,500 per issuer, and $10,000 overall, in any 12 month period.
  • Capital raising to occur via licensed intermediaries that are prohibited from providing investment advice, soliciting investors or having an interest in any issuing company.

For further information please don’t hesitate to contact us.