The issue of defective registrations under s 165 of the PPSA is one of the numerous topics raised by interest groups in their submissions to the Attorney-General in respect of the statutory review of the Personal Property Securities Act due 25 July 2014.
One of the suggested changes is that the registration should not be defective pursuant to s 165 (c) or considered to be seriously misleading for the purposes of s 164, if it indicates that a security interest is a PMSI (to any extent) and it is not in fact a PMSI (to any extent). Stakeholders have suggested that s 165(c) and s 164 should be amended accordingly.
The reason they put forward is that s 165(c) does not apply so long as the security interests to which a registration relates is a PMSI to any extent. This means there could be, and usually will be, security interests that are non PMSI’s as well as ones that are PMSIs, covered by the one registration. Ascertaining whether a particular security interest is a PMSI and has PMSI priority involves an analysis of a number of factors including the terms of the security agreement, compliance with timing requirements in s 62 of the PPSA and determining if particular goods have been paid for. Merely indicating a registration could relate to a PMSI does not limit it to PMSI claims nor establish all of the requirements for claiming PMSI priority.
Checking the PMSI box alone does not establish that the secured party has complied with the timing requirements in s 62 of the PPSA and parties searching the register are no further advanced than if this requirement did not exist. A secured party can have a PMSI as defined in s 14, but not be entitled to PMSI priority because it has failed to comply with s 62 which relates to the timing of registrations.
However, consequences of not checking the PMSI box in a registration are catastrophic for suppliers of inventory and lessors as s 165(c) is currently drafted.
But there is some other good news in relation to financing statements as in the case of Future Revelation Limited –v – Medica Radiology and Nuclear Medicine Pty Ltd [2013] NSWSC 1741, where Brereton J held that the use of an ABN rather than an ACN in a financing statement was not a seriously misleading defect. He said “…a search by reference to the identity of the collateral or the grantor would have disclosed the relevant security interest. Such a search would have identified clearly enough the secured party, namely Suncorp, even though its ABN and not ACN was stated. In my view, it is very clear that this defect was not seriously misleading or in that matter misleading at all.”
He followed a long line of cases in Canada which held that the test for whether a defect is “seriously misleading” is whether it will result in the registration not being disclosed on a search – GMAC Leaseco Ltd – v Moncton Motor Home & Sales (2003) 227 DLR (4th) 154.