The Business, The Boat, The PPSA & The Family Law Property Arrangement

Family Law practitioners may have thought that the introduction of the Personal Property Securities Act 2009 (Cth) (‘PPSA’) would not have any significant impact upon them. This article seeks to show the inaccuracy of that assessment.The scenario is adapted from facts outlined in this blog article  and this previous blog post. I have massaged those facts to suit my purpose.

There are many ways I could have approached this topic. I have chosen to observe a property adjustment as it might unfold with the PPSA now in play. It seemed to communicate the impact more clearly than a case note.

The Boat and Some Less Than Smooth Sailing
The Husband and the Wife had ended their fifteen year marriage. They were now in dispute over what arrangements ought be made in respect of the property from that relationship.  Proceedings had been commenced in the Federal Magistrates Court, but no trial date had been set for the matter.  As a result of interlocutory proceedings the Court had made orders for the sale of a business owned by the parties.  The proceeds of the sale of that business were to be paid into the trust account of the solicitor for the Husband. The Wife did not have a solicitor, she was conducting her case by herself.

Not long after those orders were made the parties signed a contract to sell the business to The Purchaser. Prudently the solicitors for the Purchaser did a search of the Personal Property Securities Register (‘PPSR’) to ensure the Vendors were able to sell all of the business items without any relevant charge over them.

The search revealed that a Finance Company had registered a Security Interest on the PPSR over “all present and after acquired property” of the Vendors. That registration included the boat of the Vendors. That boat was the subject of a fixed charge by a Finance Company and had been in place prior to the PPSR commencing on Monday 30 January 2012. Significantly the debt the subject of the charge had been settled with the Finance Company prior to the PPSR commencing on Monday 30 January 2012.

At the relevant time that fixed charge was registered with ASIC and at REVS. When the PPSR started some errors occurred in the migration of fixed charges from ASIC and REVS registrations. The registration of the fixed charge in respect of the boat of the parties was one such error. The PPSR showed that charge as being a current security interest held by The Finance Company in respect of the boat.

Even though the boat was not included in the sale of the business, the PPSR registration affected the sale.  Without a release of the security interest relating to the boat, the Purchaser would not get a clear title to the business it wished to purchase. The Vendors necessarily became affected by this development, in addition to the Purchaser.  The “add on” that the Finance Company had included for “all present and after acquired property” meant that the Vendors could not sell their other items unencumbered or free from any mortgage or charge.

The Finance Company had no authority to maintain the registration of the Security Interest in the boat as it appeared on the PPSR.

The solicitor for the Purchaser wrote to the Wife requesting that she and the Husband take appropriate steps to correct the position in relation to the incorrect registration of the security interest registered in respect of the boat.  The Wife did not respond to that correspondence from the solicitor for the Purchaser.

The solicitor for the Purchaser the wrote separately to the Husband and the Wife formally requesting that they give The Finance Company an Amendment Demand (See S.178) to correct the boat security registration situation.  That correspondence pointed out that any Seriously Misleading Defect in data relating to the registration of a security interest will cause a registration to be ineffective (See s.164 & s.165).

That correspondence from The Purchaser to the Husband also said if no appropriate action was taken within seven (7) days The Purchaser would make an application under s.182 to the Federal Magistrates Court for Orders correcting the situation and would seek its costs of so doing from the Husband and the Wife.

The Wife told the Husband privately that she would do nothing to correct the situation in relation to the boat, that the Husband would have to do it all himself.

The solicitor for the Purchaser also wrote to The Finance Company similarly requesting that the boat security registration situation be corrected.  That correspondence also said The Finance Company may be liable to the Purchaser for any damages the Purchaser suffered as a result of the delay in the sale of the business due to the incorrect registration of the Security Interest.  The Finance Company did not respond to the correspondence of the solicitor for the Purchaser.

The solicitor for the Husband then formally wrote to the Finance Company giving it an Amendment Demand (See S.178) to correct the boat security registration situation. That correspondence further stated:
•    The Finance Company would be required to register a Financing Change Statement on the PPSR;
•    That The Registrar may give the Secured Party an Amendment Notice of the amendment demanded (See s.180 (1) & (5)); and
•    That it was expected the Financing Change Statement will be registered after five (5) days of the Amendment Notice being given (See s.181)

Whilst the Finance Company eventually changed the registration, the sale was delayed by over a week. At settlement of the business transfer transaction the purchase/sale price was adjusted to compensate the Purchaser for the loss suffered by the Purchaser as a result of the incorrect registration of the security interest in relation to the boat.

The Husband took the view that the amount of compensation he had to pay to the Purchaser for the incorrect registration of the security interest in respect of the boat and its impact on the transfer of the business transaction did not warrant him commencing proceedings to recover that compensation from The Finance Company. However he took a different view with respect to the Wife. He had his solicitor write to the Wife informing her that he would be seeking an appropriate adjustment at their property settlement trial in due course, commensurate with her lack of cooperation in relation to correcting the registered security interest position with respect to the boat.

Ultimately the Federal Magistrate hearing the property adjustment trial agreed with the Husband on that point and adjusted the property of the Husband and Wife accordingly.

Conclusion
Whilst this might not be the way you would conduct such a matter, it may be an approach that finds favour with your opponent. Knowing how to respond to the challenges raised above is an important aspect of the job of a litigation lawyer. Being caught short or not knowing is a mistake your client may not forgive.

Footnote
This article has been published by CCH Australia in its Tracker Series

Ross Bowler, CCH, Australian Family Law Tracker, Issue 5, May 2012 “The Business, The Boat, The PPSA and The Family Law Property Arrangement”

Ross Bowler, CCH, Australian Corporate, Company and Securities Law Tracker, Issue 5, May 2012 “The Business, The Boat, The PPSA and The Family Law Property Arrangement”