The introduction of the Personal Properties Securities Act (PPSA) should not be news to readers. However, the fundamental shift in protection and the fallouts of ineffective registration is still making waves, particularly in the event of an insolvency of the grantor.
The PPSA, and its accompanying Personal Property Securities Register (PPSR) has not only increased the search fees dramatically (while we don't necessarily say there is a conspiracy theory here, we would note that someone is making a lot of money out of all of this), but the attention to detail that now must be applied by parties seeking to secure their interest has also dramatically increased.
Recently, we conducted a PPSR search for a motor vehicle and found an error in the VIN number used to identify the vehicle. In this instance someone misplaced an "H" with an "X" in the VIN number. We can't comment on what this person was doing at the time of registration to account for this error, but the ramifications of this simple mistake were severe. In summary:
- Collateral must be described by serial number (Section 153(1) of the PPSA).
- There is a defect in the registration if collateral must be described by serial number and the search of the serial number is unable to identify the registration (section 165(a) of the PPSA).
- Motor vehicles must be described by serial number (Paragraph 2.2 of Schedule 1 of the Regulations).
- A serial number includes the VIN, the chassis number or the manufacturer's number (Paragraph 2.2(3) of Schedule 1 of the Regulations).
- Registration is ineffective if there is a defect pursuant to Section 165 (Section 164(1)(b) of the PPSA).
- The vehicle vests in the grantor immediately before a resolution for the winding up of a company if the security interest is unperfected (Section 267(2) of the PPSA).
Accordingly, as there was a misplaced "X" instead of a "H" in the VIN registration, it was our view that the vehicle registration was unperfected and therefore ineffective. Under section 267 of the PPSA, the vehicle vests in the liquidator. This meant we sold the vehicle free of any security interest and kept the proceeds of just over $32,500. Not an easy loss to take as the party granting finance, over a simple typo. Interestingly, this was not a small player in the finance market, which just goes to show these types of simple errors can happen to anybody.
The lesson is to take care with all registrations, particularly those that require an exact match to an easily identifiable serial number like a vehicle VIN. After all, while X often marks the spot it doesn't necessarily result in any treasure in the case of a defective PPSR registration.
Nathan Deppeler is a Partner at Worrells Western Victoria