The recent New Zealand High Court decision of Polymers International Limited v Toon & Ors highlights the importance of ensuring security interests are registered correctly on the Personal Property Securities Register (PPSR).
The Australian personal property securities regime is very similar to the New Zealand regime.
Errors or omissions in financing statements may result in a party losing out to other creditors who have secured (and correctly registered) interests on the Australian PPSR.
Polymers supplied plastic products to Interworld. The parties entered into a credit arrangement in 2002 under which products were to be supplied by Polymers. Payment for the products was to be secured by Interworld granting a security interest in favour of Polymers. Between March and May 2012, Polymers supplied more than
$750,000 worth of goods and services to Interworld. On 30 August 2012 Interworld went into liquidation. Polymers lodged a proof of debt claim form with the liquidators for the amount it was owed.
The liquidators refused to recognise Polymers as a secured creditor on the basis that Polymers had made 3 errors when registering the financing statement on the NZ PPSR:
- Interworld Plastics N Z Limited was misspelt as it did not include a gap between the N and the Z
- The registration did not include the debtor company’s unique incorporation number (equivalent to an ACN/ABN in Australia) and
- Interworld was not classified as a company (also required for Australian PPSR registrations).
NZ High Court decision
Under the New Zealand legislation an error must be seriously misleading for it to invalidate the registration of a financing statement. The test adopted by the court was whether the information provided in the statement allowed an effective search using NZ PPSAs search criteria. The Court found that whilst there was a mistake is not putting a space between the letters N and Z in the name of Interworld, this was not seriously misleading. A person searching the PPSR would not be mislead by such an omission. However the failure to include Interworld’s unique incorporation number and to classify Interworld as a company on the NZ PPSR was found to be seriously misleading.
It was held that the financing statement was not validly registered on the NZ PPSR and Polymers was not a secured creditor.
How does it affect you?
The NZ and Australian PPSR regimes are quite similar, as are the laws with respect to defects and errors in registrations. The Australian legislation says that a registration will be ineffective if data with respect to the registration is seriously misleading or if there is a defect in accordance with section 165 of the Personal Property Securities Act.
As illustrated in the New Zealand case, if a debtor goes into liquidation and a security interest has not been correctly registered on the PPSR, a creditor is at risk of losing priority to secured parties with correctly registered security interests.
Things you can do now
It is essential that security interests are correctly recorded on the PPSR to ensure creditors’ interests are adequately protected. Security interests must be registered correctly and within time. Information regarding the secured property must be obtained from the debtor.
If you are unsure how to use the register, we can register your security interests for you, or give your staff advice and training on registering securing interests.