Rohrt, in the matter of Rose Guerin and Partners Pty Ltd (in liq) v Princes Square W24NY Pty Ltd [2021] FCA 483 (Australia)

The fate of a prized 2017 Ferrari GTC4 Lusso in the liquidation of Rose Guerin and Partners Pty Ltd (Company) has been confirmed by the Federal Court as a result of BMW Finance (BMW) failing to perfect their security interest over the vehicle.

The case has several key takeaways for financiers, creditor and insolvency practitioners, and should be cautiously read as such.

Background

The Ferrari was subject to a chattel mortgage entered into by the Company and BMW in June 2018 for an amount of AU$620,325. In 19 December 2019, Richard Rohrt and Stephen Dixon were appointed administrators of the Company and on 5 February 2020 they were subsequently appointed liquidators. By February 2020, the amount owing to BMW was AU$465,633.73.

On 11 February 2020 the liquidators sent BMW a “Notice of disclaimer of onerous property” on account that the liquidators had deemed that there was to be little to no equity in the vehicle. In contradiction to this notice the liquidators then seized the Ferrari on 27 May 2020 pursuant to a warrant granted by the Federal Court.

BMW then filed an application in the Federal Court to seek declarations about the ownership of the vehicle. Some of the issues that were in contention are set out below.

Issues

1. Was BMW’s registration of the security interest defective?
2. What are the consequences of defective registration in a liquidation?
3. Were the liquidators entitled to relief in respect to the notice of disclaimer?

BMW’s defective registration

The liquidators submitted that BMW’s registration was ineffective pursuant to section 164 and 165(1)(b) of the Personal Property Securities Act 2009 (Cth) (PPSA). This is because BMW registered their interest against their ACN as opposed to their ABN in contradiction to Clause 1.5(1) of Schedule 1 of the Personal Property Securities Regulations 2010 (Cth).

The liquidators utilised and Anderson J, agreed that Brereton J’s analysis in In the matter of OneSteel Manufacturing Pty Limited (administrators appointed) [2017] NSWSC 21 (OneSteel) was of use to determine whether BMW’s registration was seriously misleading for the purposes of section 164 of the PPSA.

The rationale for strict compliance espoused in OneSteel was applicable on Rohrt as a search of the Personal Property Securities Register (PPSR) would not reveal BMW’s security interest as the security had been registered with the wrong particular. Brereton J articulates this at [51] of OneSteel: “A search will only return details of what has been registered. A search by ABN will not return registrations against the ACN, and a search by ACN will not return registrations against the ABN.”

As a result, the mere fact that an authorised user of the PPSR could have been misled by BMW’s incorrect registration allows the Court to categorise the registration as “seriously misleading” and therefore defective.

Consequences

Anderson J found that due to BMW’s defective registration of the security interest, the Ferrari, became vested in the Company upon the date that the Company enters administration (OneSteel) as per section 267 of the PPSA. Anderson J stated that “the Company held BMW’s interest in the relevant personal property which included the Ferrari as an unencumbered asset free of BMW’s security interest.” [99]

Therefore where a security interest has not been perfected and then the company subsequently enters administration as per the triggering event of section 267(1), the Ferrari then becomes an unencumbered asset of the Company free of BMW’s security interest (as per In the matter of Maiden Civil (P&E) Pty Ltd [2013] NSWSC). As a result, BMW has forfeited the benefit of the security and been relegated to the position of an unsecured creditor with a right to prove in the grantor company’s insolvency [96].

What about the effect of a disclaimer?

BMW submitted that the effect of the disclaimer pursuant to section 568(1)(d) of the Corporations Act issued by the liquidators on February 11 2020 was that the security interest was transferred to BMW. The liquidators were able to issue a disclaimer under section 568(1)(d) of the Corporations Act which allows the liquidator of a company the ability to disclaim property that “may give rise to a liability to pay money or some other onerous obligation.”

Anderson J rejected this submission from BMW and found the effect of a disclaimer was a nullity. Following on from the decision of the Ferrari vesting in the Company unencumbered, the Company was now holding a AU$300,000 asset, which fails to meet the threshold of an onerous obligation as per section 568(1)(d).

Having regard to value and security position of the Ferrari, the Court held that at the time of issuing the disclaimer, the liquidators did not have the right to disclaim the property under section 568(1)(d) and as a result “the purported notice of disclaimer was void, of no effect and is a nullity.” [162]

Key takeaways for insolvency practitioners

There are several important takeaways for insolvency practitioners:

• Insolvency practitioners should be extremely familiar with the registration requirements of the PPSR and take great care confirming that security interests have been perfected.
• This outcome was fortunate for the liquidators and serves as a warning to other insolvency practitioners to take great care when disclaiming valuable property in the course of a liquidation or administration.
• The outcome showcases that insolvency practitioners may still issue disclaimers over property but the Court may intervene to preserve property where the disclaimer may have not been properly made. 

Key takeaways for financiers/creditors

• The case provides a clear warning to creditors to carefully perfect their security interest on the PPSR. A minor transgression of any regulations may ensure that a secured creditor will join the line of unsecured creditors in the event of any administration.
• The PPSA is almost a decade old and creditors should also be extremely familiar with the registration requirements. Our team is well placed to assist with any queries you may have.