insolvency network newsletter october 2018
Oct 15 2018
We Are Going Electronic!
This will be the last edition of our newsletter to be physically posted to you. We are conscious of the environment and wish to acknowledge that by saving paper. Should you wish to confirm your email to receive future editions of our newsletter, please advise your email details to admin@pcipartners.com.au
PPSR - Grantor Beware
The Personal Property Securities Register (PPSR) is the online noticeboard which details whether someone is claiming an interest against goods or assets. The aim of the PPSR was to make it easier to identify secured goods in insolvency.
A grantor (the individual or organisation who owns or has an interest in the personal property) search on the PPSR may be conducted by name, ACN and ABN.
Identifying a registered security interest when searching the PPSR using any of the identifiers for a grantor should mean that the secured party’s position is protected in the event the grantor becomes insolvent by preserving their priority position against other creditors’ claims.
What is becoming all too common is that registrations on the PPSR are defective. If a defect in a PPSR registration is found, it has the effect of removing a “secured” creditors’ priority position and any claim will be as an ordinary unsecured creditor.
Section 164 of the Personal Property Securities Act 2009 (PPSA) provides that, registrations are ineffective because of either a ‘seriously misleading’ defect, or a defect detailed in section 165 of the PPSA.
In relation to a commercial motor vehicle, section 165 of the PPSA provides that a defect in registration exists if a search for the grantor’s detail, as prescribed by the Personal
Property Securities Regulations 2010 (the Regulations), will not enable a searching party to locate the registration.
Recently, our firm was appointed Liquidators of a number of companies which have been corporate trustees. A search of the PPSR revealed that financiers had registered their security interest against motor vehicles.
The financiers provided their security agreements, which disclosed that the company had entered into the respective transactions in their capacity as Trustees of a Trust. The motor vehicles were each commercial property for the purposes of the PPSA and the ABN of the Trust was provided in the credit application.
Clause 1.5 of Schedule 1 to the Regulations provides that where a trust asset is being secured, the trust’s ABN is the relevant identifying detail for the grantor.
There will be a defect in a PPSR registration if a search of the PPSR by reference to the grantor’s details, (which is required to be included in the security agreement) is not capable of revealing the registration.
When a party enters into an agreement with a Trustee of a Trust, which has an ABN, the PPSR registration must be recorded over the ABN of the Trust, in order to be valid.
Our investigations revealed that the financiers had registered their security interest on the PPSR in the company name and ACN. However, there was no registration recorded against the ABN of the Trust.
Consequently, the respective registrations were not valid and their “security” vested in the company upon the appointment of a Liquidator. The financiers were required to remove their respective registrations.
Registration requirements for each grantor are as follows:-
- Individual: If the individual has a driver’s licence, the registration must be against the name recorded on the individual’s driver’s licence.
- Body Corporate: For Australian managed investment schemes, the registration must be against the Australian Registered Scheme Number (ARSN). If the body corporate does not have an ARSN, the registration must be against the ACN.
- Trustee: For a body corporate that is a Trustee of a Trust that has an ABN, the registration must be against the Trust’s ABN. If there is no ABN, the registration must be against the Trustee’s ACN.
- Partnerships: If the grantor is a partner in a partnership with an ABN, the registration must be against the ABN. If there is no ABN, the registration must be against the details of the individual or body corporate.
Where a grantor enters into an agreement and the grantor is a company, the registration must be against the company name, ACN and ABN. If the company acts as Trustee of a Trust, the registration must also be against the ABN of the Trust. It is essential that the correct identifier be used in PPSR registrations.
FEG - Abuse Penalties Strengthened
In June 2018, the Federal Government released the Corporations Amendment (Strengthening Protections for Employee Entitlements) Bill 2018 (Cth) (Bill) to address the corporate misuse of the Fair Entitlement Guarantee (FEG) scheme.
Under the FEG scheme, employees who have lost their jobs due to the insolvency of their employer may be eligible to receive assistance from the Australian Government.
There has been an increase in the number of company officers structuring their corporate affairs to avoid paying employee entitlements when a business becomes insolvent.
This practice has resulted in increasing the costs of the FEG scheme which is ultimately borne by tax payers. The average annual costs under the FEG scheme have more than tripled from $70.7 million in the four years to 30 June 2009, to $243.6 million in the four years to 30 June 2017.
The proposed legislative changes seek to strengthen the criminal and civil actions against persons who engage in transactions which are directed at preventing or reducing employer liability for employee entitlements under Part 5.8A of the Corporations Act 2001 (Cth) (Act).
The criminal offence in Section 596AB of the Act will be broadened, to include situations where a person enters into an agreement or transaction that avoids the payment of, or significantly reduces the amount of, the employee entitlement liabilities of a company which can be recovered and the person is reckless as to those possible outcomes.
The Bill expands the list of potential parties able to bring actions to include the Australian Taxation Office (ATO), the Fair Work Ombudsman (FWO) and the Department of Jobs and Small Business (DJSB), which administers the FEG scheme.
Penalties are being increased for individuals to a maximum of 10 years imprisonment and/or a fine of $945,000 or three times the benefit attributable to the offence. The penalty for companies will increase to the greater of $9.45m, three times the benefit attributable to the offence or 10% of the company’s annual turnover.
It is common for a corporate group to have multiple entities performing tasks for the collective group. For example, one company in a corporate group may be the primary employer for the group. The employment company may not hold any assets and typically does not have sufficient realisable assets to pay employee entitlements.
The Bill will allow liquidators, ATO, FWO and DJSB to seek contributions from other associated entities within the insolvent company’s corporate group for payment of outstanding employee entitlements by Court Order.
To obtain an Order, the insolvent company must be part of the collective group, the contributing entity must have benefited from the work carried out by the employees and it is just and equitable for an Order to be made.
The amount payable by the contributing entity will be limited to the difference between the value of the work completed and the amount actually paid by the contributing entity.
The Bill is expected to be introduced into Parliament and passed by the end of this year.
To find out more about the information covered in this newsletter or to discuss any issues pertaining to personal or corporate insolvency matters, telephone on 03 8636 3333 or email any of the following contacts:
Stephen Michell - Director smichell@pcipartners.com.au
Philip Newman - Director pnewman@pcipartners.com.au
David Quin - Director dquin@pcipartners.com.au
Sean Pulverman - Principal spulverman@pcipartners.com.au
Warren White - Principal wwhite@pcipartners.com.au
Kylie Wright - Principal kwright@pcipartners.com.au
Peter Fraczek - Manager pfraczek@pcipartners.com.au
Frank Ntim - Manager fntim@pcipartners.com.au
Anna Odrzywolska - Manager aodrzywolska@pcipartners.com.au
All material contained in this newsletter is written by way of general comment. No material should be accepted as authoritative advice and any reader wishing to act upon the material should first contact our office for properly considered professional advice which will take into account your own specific conditions. No responsibility is accepted for any action taken without advice by readers of the material contained herein.
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