Publications - Corporate & Commercial
How BMW Lost its Ferrari
21 July 2021
Snapshot
A mistake as simple as registering a security interest on the PPSR against an Australian Company Number of a company as opposed to its Australian Business Number is enough to declare the security interest unperfected.
This situation occurred in the matter of Rohrt, in the matter of Rose Guerin and Partners Pty Ltd (in liq) v Princes Square W24NY Pty Ltd [2021] FCA 483, which is discussed below.
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Held
On 13 May 2021 Anderson J held that the:
Prior to the realisation that BMW’s PPSA security interest registration was unperfected, the administrators had issued a disclaimer as to onerous property to BMW in respect of the Ferrari and its associated loan. However, the administrators formed the view that the disclaimer was ineffective as the Ferrari did not give rise to a liability to pay money or some other onerous obligation, which was the position that was subsequently held by the Court.
As a result of an unperfected PPSA registration, BMW held no security for the loan extended to the Company to purchase the Ferrari and became an unsecured creditor of the Company.
Facts
On 11 May 2012, the Company was incorporated. Rosemarie Brenda Guerin was appointed the sole director and secretary. Guerin was also the sole shareholder, holding 1,200 ordinary shares.
The Ferrari was subject to a chattel mortgage agreement entered into on 22 June 2018 between BMW and the Company as trustee for the Trading Trust (this is important), for a loan of $620,325. BMW’s security interest in the Ferrari was registered on the Australian Company Number (ACN) of the Company on the PPSR .
On 19 December 2019, a separate secured creditor of the Company, being Fundit Limited (trading as Banjo Loans), appointed Richard Rohrt and Stephen Dixon as administrators of the Company, who later were appointed the liquidators following a resolution at the creditors meeting to wind up the Company.
On 11 February 2020 and in relation to the Ferrari, the liquidators issued a Notice of Disclaimer of Onerous Property (Disclaimer) to BMW. In other words, the liquidators had formed the view that there was unlikely to be any equity in the Ferrari in which BMW financed. For the purposes of s 568A(1) of the CA, the Ferrari and the loan were described in the Disclaimer as:
“The property is property of the Company and consists of property that may give rise to liability to pay money or some other onerous
obligation.”
On 19 May 2020, the liquidators filed with the Federal Court an ex parte application that sought (amongst other things) an order that, pursuant to s 530C of the CA a warrant be issued to the liquidators to seize all property and books of the Company.
On 21 May 2020, the Court issued the warrant and on 27 May 2020 the warrant was executed. It was during the execution of the warrant that the liquidators formed the view that they were entitled to take possession of the Ferrari on the basis that BMW’s PPSR registration was defective as it was registered against the Australian Company Number (ACN) of the Company and not the Australian Business Number (ABN) associated with the Trading Trust.
Clause 1.5 of Schedule 1 of the PPS Regulations provides a table (reproduced below) concerning data required in circumstances where the grantor (of the security interest) is a trustee. As the chattel mortgage to BMW makes clear that the Company purchased the vehicle in its capacity as a trustee of the Trading Trust, the Company, in its capacity as a trustee, is the grantor. Accordingly, the PPSR registration falls into item 2 in the table below:
A mistake as simple as registering a security interest on the PPSR against an Australian Company Number of a company as opposed to its Australian Business Number is enough to declare the security interest unperfected.
This situation occurred in the matter of Rohrt, in the matter of Rose Guerin and Partners Pty Ltd (in liq) v Princes Square W24NY Pty Ltd [2021] FCA 483, which is discussed below.
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Held
On 13 May 2021 Anderson J held that the:
- Personal Property Securities Register (PPSR) registration by BMW Australia Finance Limited (BMW) against a 2017 Ferrari GTC4 Lusso (Ferrari) was defective pursuant to s 164(1)(b) (and s 164(1)(a)) of the Personal Property Securities Act 2009 (Cth) (PPSA);
- BMW’s security interest in the Ferrari vested in Rose Guerin and Partners Pty Ltd (Company) as trustee of the Rose Guerin and Partners Trust immediately before the liquidators were appointed as administrators of the Company pursuant to s 267 of the PPSA; and
- the disclaimer issued by the liquidators in respect of the Ferrari pursuant to s 568(1)(d) of the Corporations Act 2001 (Cth) (CA) dated 11 February 2020 was ineffective.
Prior to the realisation that BMW’s PPSA security interest registration was unperfected, the administrators had issued a disclaimer as to onerous property to BMW in respect of the Ferrari and its associated loan. However, the administrators formed the view that the disclaimer was ineffective as the Ferrari did not give rise to a liability to pay money or some other onerous obligation, which was the position that was subsequently held by the Court.
As a result of an unperfected PPSA registration, BMW held no security for the loan extended to the Company to purchase the Ferrari and became an unsecured creditor of the Company.
Facts
On 11 May 2012, the Company was incorporated. Rosemarie Brenda Guerin was appointed the sole director and secretary. Guerin was also the sole shareholder, holding 1,200 ordinary shares.
The Ferrari was subject to a chattel mortgage agreement entered into on 22 June 2018 between BMW and the Company as trustee for the Trading Trust (this is important), for a loan of $620,325. BMW’s security interest in the Ferrari was registered on the Australian Company Number (ACN) of the Company on the PPSR .
On 19 December 2019, a separate secured creditor of the Company, being Fundit Limited (trading as Banjo Loans), appointed Richard Rohrt and Stephen Dixon as administrators of the Company, who later were appointed the liquidators following a resolution at the creditors meeting to wind up the Company.
On 11 February 2020 and in relation to the Ferrari, the liquidators issued a Notice of Disclaimer of Onerous Property (Disclaimer) to BMW. In other words, the liquidators had formed the view that there was unlikely to be any equity in the Ferrari in which BMW financed. For the purposes of s 568A(1) of the CA, the Ferrari and the loan were described in the Disclaimer as:
“The property is property of the Company and consists of property that may give rise to liability to pay money or some other onerous
obligation.”
On 19 May 2020, the liquidators filed with the Federal Court an ex parte application that sought (amongst other things) an order that, pursuant to s 530C of the CA a warrant be issued to the liquidators to seize all property and books of the Company.
On 21 May 2020, the Court issued the warrant and on 27 May 2020 the warrant was executed. It was during the execution of the warrant that the liquidators formed the view that they were entitled to take possession of the Ferrari on the basis that BMW’s PPSR registration was defective as it was registered against the Australian Company Number (ACN) of the Company and not the Australian Business Number (ABN) associated with the Trading Trust.
Clause 1.5 of Schedule 1 of the PPS Regulations provides a table (reproduced below) concerning data required in circumstances where the grantor (of the security interest) is a trustee. As the chattel mortgage to BMW makes clear that the Company purchased the vehicle in its capacity as a trustee of the Trading Trust, the Company, in its capacity as a trustee, is the grantor. Accordingly, the PPSR registration falls into item 2 in the table below:
During the course of the hearing, BMW conceded that the registration of its security interest in the Ferrari was defective as the registration was made against the Company’s ACN rather than the ABN as required by item 2 of clause 1.5 of Schedule 1 of the PPS Regulations.
How a secured interest becomes an unsecured interest
As BMW conceded that its registration on the PPSR was not effective, it could not satisfy s 21(2)(a) of the PPSA, being the requirement that, “for any collateral, a registration is effective with respect to the collateral”. As a consequence, BMW’s security interest was “unperfected” for the purposes of s 267(1)(b) of the PPSA.
Further, the appointment of administrators to the Company is a defined (or triggering) event under s 267(1)(a) of the PPSA, in which the consequences of such an event are defined in s 267(2) of the PPSA which provides:
Security interest vested in grantor
(2)The security interest held by the secured party vests in the grantor immediately before the event mentioned in [s 267]1(a) occurs.
As a consequence of the operation of ss 267(1) and (2) of the PPSA, BMW’s unperfected security interest in the BMW “vested in the grantor”, namely the Company, “immediately before” the date of the commencement of the administration of the Company, being 19 December 2019. In other words, the Company held BMW’s “interest in” the Ferrari as its unencumbered asset free of BMW’s security interest. As BMW had forfeited the benefit of its security interest, it was relegated to the position of an unsecured creditor with a right to prove in the Company’s insolvency.
Takeout
As can be seen from this case, registration of security interests on the PPSR is not a straightforward process. If you would like any assistance in this area, please contact our office.
A copy of the full judgment can be accessed here.
How a secured interest becomes an unsecured interest
As BMW conceded that its registration on the PPSR was not effective, it could not satisfy s 21(2)(a) of the PPSA, being the requirement that, “for any collateral, a registration is effective with respect to the collateral”. As a consequence, BMW’s security interest was “unperfected” for the purposes of s 267(1)(b) of the PPSA.
Further, the appointment of administrators to the Company is a defined (or triggering) event under s 267(1)(a) of the PPSA, in which the consequences of such an event are defined in s 267(2) of the PPSA which provides:
Security interest vested in grantor
(2)The security interest held by the secured party vests in the grantor immediately before the event mentioned in [s 267]1(a) occurs.
As a consequence of the operation of ss 267(1) and (2) of the PPSA, BMW’s unperfected security interest in the BMW “vested in the grantor”, namely the Company, “immediately before” the date of the commencement of the administration of the Company, being 19 December 2019. In other words, the Company held BMW’s “interest in” the Ferrari as its unencumbered asset free of BMW’s security interest. As BMW had forfeited the benefit of its security interest, it was relegated to the position of an unsecured creditor with a right to prove in the Company’s insolvency.
Takeout
As can be seen from this case, registration of security interests on the PPSR is not a straightforward process. If you would like any assistance in this area, please contact our office.
A copy of the full judgment can be accessed here.
Emma Davies John Graves
Senior Associate Principal
Bradfield & Scott Lawyers Bradfield & Scott Lawyers
Telephone: 9233 7299 Telephone: 9233 7299
Email: edavies@bradscott.com.au Email: jgraves@bradscott.com.au
Senior Associate Principal
Bradfield & Scott Lawyers Bradfield & Scott Lawyers
Telephone: 9233 7299 Telephone: 9233 7299
Email: edavies@bradscott.com.au Email: jgraves@bradscott.com.au
