A liquidator's notice of disclaimer was held to be a nullity and of no effect in the recent Federal Court decision of Rohrt, in the matter of
As a result, a secured creditor lost its security - another victim of failure to register properly under the Personal Property Securities Act 2009 (Cth) (PPSA) and Personal Property Securities Regulation 2010 (Cth) (Regulation).
Facts
In
On
The Company went into administration on
On
A notice of disclaimer of onerous property (NOD) pursuant to section 568(1)(d) of the Corporations Act 2001 (Cth) (Corporations Act) was issued to
In the meantime, and unbeknown to
The Liquidators seized the Ferrari on
The Liquidators seized the vehicle on the basis that:
BMW's registration on the PPSR was defective because the security interest should have been registered against the ABN associated with theTrading Trust and not the ACN of the Company, as required by item 2 of cl 1.5 of Schedule 1 of the Regulation;- As a result of the defective registration, section 267 of the PPSA provides that upon an administrator or liquidator being appointed, any unperfected security interest vests in the grantor (in this case, the Company); and
-
therefore, at the time the NOD was issued in
February 2020 , the security interest vested in the Company and notBMW and the NOD was either ineffective or able to be set aside by the Court.
Was the PPSR registration defective?
In accordance with what has become the position accepted by the courts, the Liquidators argued that under section 164 of the PPSA, the registration was ineffective due to a defect in the PPSR under section 165 of the PPSA (registration under the ACN instead of the ABN), or that the use of the wrong identifier was "seriously misleading" under section 164(1)(a) of the PPSA.
Did the Ferrari vest in the Company?
However, the question then became whether the Liquidators' NOD affected that position.
Was the NOD a nullity?
The Liquidators argued that the NOD was a nullity because it involved two types of property, namely the Ferrari itself and the Mortgage under which the Ferrari was financed, and:
- as
BMW did not have any claim to or interest in the Ferrari at the time the NOD was issued, the Ferrari was not "property that may give rise to a liability to pay money or some other onerous obligation" under section 568(1)(d) of the Corporations Act; and - in respect of the Mortgage, as it is a contract, section 568(1A) of the Corporations Act applies and has the effect that the Liquidators were required to seek leave of the Court before disclaiming the Mortgage.
In the alternative, the Liquidators said that if the Court found the NOD not to be a nullity, then the Court has the power to set it aside pursuant to section 568E of the Corporations Act (which provides a person who has an interest in disclaimed property to apply to the Court to set the disclaimer aside after it has taken effect).
The Court ultimately decided that the NOD was "void, of no effect and is a nullity".
Firstly, the NOD plainly disclaimed only the Ferrari, and not the Mortgage.
Next,
Lastly, as to whether the Ferrari gave rise to "some other onerous obligation" under section 568(1)(d), the Court found that as at the time of the NOD, the Ferrari was an unencumbered asset of the Company to the value of more than
Therefore, in summary, the Liquidators' power to disclaim the Ferrari under section 568(1)(d) was not enlivened or exercised by the NOD, with the effect that the NOD was void.
Key Takeaways
This decision is important for both creditors and liquidators.
It is yet another stark reminder for creditors that PPSR registrations must be strictly compliant with the PPSA and the Regulation in order to be perfected. If a security interest is not perfected and a company goes into administration or liquidation, the subject property will vest in that company rather than the creditor.
For liquidators, this decision reaffirms that you must examine PPSR registrations carefully before disclaiming any 'onerous property'. However, even if you fail to do this before disclaiming the property, it is possible for a disclaimer to be nullified if a creditor's security interest has not been perfected and the basis of the disclaimer under section 568 of the Corporations Act was in fact not enlivened.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
Level 10
NSW
2001
Tel: 28281 7800
Fax: 28281 7838
E-mail: apose@bartier.com.au
URL: www.bartier.com.au
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