Making registrations on the Personal Property Securities Register without reasonable grounds contravenes the Personal Property Securities Act (PPSA).
In Registrar of Personal Property Securities v Brookfield [2024] FCA 29, Justice Derrington imposed a civil penalty for such a registration, and in doing so gave some guidance on when a registration will (and won't) be made on reasonable grounds.
An unsecured debt and nine registrations on the PPS Register
Blueprop Pty Ltd had an unsecured debt which was owed to it by Real Estate Now Pty Ltd. Real Estate Now did not pay the debt to Blueprop, which then assigned the debt to Mr Brookfield.
Over time, Mr Brookfield made nine registrations on the PPS Register against Real Estate Now using the collateral class of "all present and after-acquired property – no exceptions".
Each registration was removed by the Registrar.
The Registrar applied to the court for declarations that Mr Brookfield had contravened sections 151(1) and 151(2) of the PPSA and for penalty orders to be made against him. Relevantly these sections say that a person can only make a registration on the PPS Register if they believe "on reasonable grounds" that the person described in their registration as the "secured party" is or will be a secured party in relation to the collateral described in the registration.
The court held that:
- Real Estate Now had not granted any security interest over any collateral in favour of Blueprop that was registrable on the PPS Register;
- Mr Brookfield could obtain no greater rights or interests against Real Estate Now than Blueprop had; and
- given the correspondence received by Mr Brookfield from the Deputy Registrar, in which the Deputy Registrar repeatedly stated that it did not believe that Mr Brookfield had grounds on which to make a registration against Real Estate Now, Mr Brookfield could not have continued to have reasonable grounds to believe that he was or would be a secured party in relation to the collateral described in his registrations.
What has the case clarified?
The case has clarified that whether or not the grounds to believe are reasonable:
- is an objective test; and
- requires there to be sufficient facts to support the belief in a reasonable person.
The case also confirms that penalties will be imposed "as a real deterrent to those who may seek to use the PPSR for inappropriate purposes". Mr Brookfield was ordered to pay a pecuniary penalty of $30,000.
Key takeaway
This case is a reminder to only make registrations on the PPS Register where you have reasonable grounds to believe that the person described as the secured party in your registration is or will be a secured party in relation to the collateral. That requires you to identify:
- if that secured party has been or will be granted a security interest under the terms of the transaction document;
- who is or will be the grantor of that security interest; and
- over what collateral that security interest exists or will exist.