In a first of its kind decision, Sarah C Derrington J in
Registrar of Personal Property Securities v Brookfield
[2024] FCA 29 (Brookfield) has invoked
the civil penalty provisions under section 151 of the Personal
Property Securities Act 2009 (Cth) (PPSA) by
ordering the Respondent Mr Brookfield to pay a penalty of $30,000
for repeatedly attempting to register a security interest, which
was found to be invalid, on the Personal Property Securities
Register (PPSR).
Section 151(1) of the PPSA provides that a person must not
register a financing statement (i.e. make an application to
register a security interest) without a reasonable belief that the
secured party described in the application is in fact the secured
party or will become the secured party. Further, section 151(2)
also requires that a registration be removed within five business
days if the secured party was never a secured party and there are
no reasonable grounds to believe that the party is secured.
Under the PPSA, for a person to be a secured party, they must
hold a security interest, which is defined in section 12(1) as an
interest in personal property provided for by a transaction that
secures payment or performance of an obligation. This generally
requires that a security interest be granted by a security
agreement or appropriate security clause.
What happened in this case?
Between March 2016 and March 2019, Mr Brookfield sought on seven
occasions to register a security interest allegedly granted by Real
Estate Now Pty Ltd (Real Estate Now), as grantor,
to Mr Brookfield, as the secured party (Previous
Registrations). The debt that Mr Brookfield was seeking to
secure arose from a rent roll agreement between Blueprop Pty Ltd
(Blueprop), as seller, and Real Estate Now, as
buyer. Blueprop had assigned the purported debt owed to it by Real
Estate Now to Mr Brookfield via a deed of assignment.
On each of these occasions, the Registrar issued an amendment
notice informing Mr Brookfield that the Registrar did not believe
he held a valid security interest that was registrable on the PPSR.
The Registrar also notified Mr Brookfield that registering a
financing statement on the PPSR in the absence of a valid security
interest may constitute an offence.
On at least four occasions, Mr Brookfield was invited to
challenge the Registrar’s conclusion before the Administrative
Appeals Tribunal, which he failed to do within the prescribed time
frames. While this proceeding was not commenced in relation to the
Previous Registrations, they are important to the Court’s
ultimate decision.
Despite Mr Brookfield’s numerous unsuccessful registration
attempts, he applied to register a further two interests in
relation to the same debt between 2020 and 2022, which were also
removed by the Registrar on similar grounds. The Registrar then
commenced proceedings in May 2023 based on these two
registrations.
Did Mr Brookfield hold a security
interest?
Mr Brookfield insisted that he held a security interest simply
because he was owed a debt. In correspondence with the Registrar,
Mr Brookfield asserted that “when an asset is sold, that asset
becomes encumbered until such time as it is paid for in
full”.
The Court found, in agreeance with the Registrar, that Mr
Brookfield did not hold a security interest as the requirements of
section 12(1) were clearly not met. Specifically, there was no
security agreement between Mr Brookfield and Real Estate Now nor
any appropriate security clause in the rent roll agreement or deed
of assignment that granted Mr Brookfield a security interest in the
personal property of Real Estate Now.
Did Mr Brookfield reasonably believe he held a security
interest?
The key issue was whether Mr Brookfield had reasonable grounds
to believe he held a security interest. This case highlights that a
reasonable belief that a person is owed a debt is irrelevant to the
question of whether there are reasonable grounds to believe a
person has a security interest. The Court held that the clear
correspondence from the Registrar that the Previous Registrations
were invalid provides objective evidence that Mr Brookfield’s
belief that he held a security interest was not reasonable.
On this basis, the Court decided that Mr Brookfield contravened
sub section 151(1) and had breached sub section 151(2) by failing
to amend the registrations within five business days after he did
not have reasonable grounds to believe he was the secured
party.
The Court imposed a total penalty of $30,000 which represents
approximately 10 per cent of the maximum penalty for a breach of
sub section 151(1) or 151(2), being $315,900.
A sign of what’s to come
The substantial maximum financial penalty for breaches of
section 151 has been a concern for many individuals due to the
uncertainty around the reasonable belief requirement. Nevertheless,
the Registrar has historically sought to deal with invalid
registrations via open communication rather than commencing
proceedings.
Following this case, it remains to be seen whether the Registrar
will be more willing to go down the civil penalty path in the
future. Her Honour stated that there is no obvious reason for the
Registrar’s reluctance to invoke the civil penalty provisions
in the past and noted that this was a ‘clear case’ for the
Registrar to do so. While the Registrar may continue to adopt a
patient approach, it is possible that this decision will open the
door to future section 151 proceedings that involve less severe
conduct on behalf of an applicant.
What does this mean for you?
In order to reduce any risks of being liable for a civil penalty
due to an invalid registration of a security interest, you should
consider taking the following measures:
- familiarise yourself with the requirements of section 151 and
seek professional legal advice if you are unsure whether you hold a
security interest - cooperate with the Registrar if you receive communication
regarding the improper registration of your security interest - where you disagree with the Registrar’s decision, seek
professional legal advice and pursue the correct avenues for
appealing the decision.
This publication does not deal with every important topic or
change in law and is not intended to be relied upon as a substitute
for legal or other advice that may be relevant to the reader’s
specific circumstances. If you have found this publication of
interest and would like to know more or wish to obtain legal advice
relevant to your circumstances please contact one of the named
individuals listed.
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