Many of us grow up dreaming of owning a Ferrari and those who do own a Ferrari will do all that they can to protect and maintain it.
But how does a sophisticated organisation such as BMW Australia Finance Ltd (“BMW”) lose a prized Ferrari? Alas, not being on top of or familiar with the requirements under the Personal Properties Securities Act 2009 (Cth) (“PPS Act”) has resulted in BMW losing a Ferrari.
Disclaimer: this article is not a cheat sheet on how to steal a Ferrari…. or any vehicle from BMW.
Importantly, the Ferrari in this scenario is a 2017 GTC4 Lusso (“Ferrari”) (purchased in the amount of $620,325).
The background facts of this decision in Rohrt, in the matter of Rose Guerin and Partners Pty Ltd (in liq) v Princes Square W24NY Pty Ltd  FCA 483 (“Rose Guerin”) are:
- On 22 June 2018 BMW entered into a chattel mortgage agreement with Rose Guerin and Partners Pty Ltd (“Company”) as trustee of the Rose Guerin and Partners Trust (“Trading Trust”) to purchase the Ferrari.
- The terms of the chattel mortgage were that the Company paid BMW 60 monthly instalments of $6,588.75 and a final monthly instalment of $225,000.
- Between 27 July 2018 and November 2019 the Company paid its monthly instalments.
- Around November 2019 the Company fell behind on its payments and submitted a request for hardship in December 2019.
- BMW approved the Company’s request for hardship and reduced the monthly payments to $3,295 and extended the agreement by 3 months.
- On 19 December 2019 the Company was placed in administration.
- On 5 February 2020 at the second creditors meeting, the creditors resolved that the Company should be wound up and the Administrators appointed as the Liquidators. Around this time the debt owed to BMW was in the amount of $465,633.73.
Liquidators’ Disclaim the Ferrari
- On 10 February 2020 the Liquidators contacted BMW by telephone and notified BMW of their appointment and that BMW should proceed with recovery of the Ferrari once the Ferrari was disclaimed by the Liquidators.
- On 11 February 2020 the Liquidators issued a notice of disclaimer in respect of the Ferrari.
BMW attempts to recover the Ferrari
- On 13 February 2020 BMW contacted the director of the Company and informed them that BMW will commence recovery action. The Director informed BMW that they were in the process of attempting to obtain refinance. This resulted in BMW placing recovery on hold pending any refinance.
Liquidators issue a warrant
- On 19 May 2020, the Liquidators filed an ex parte application with the Court to seek a warrant to seize the books, records and property of the Company (which included the Ferrari).
- On 28 May 2020 the Warrant was executed, and the Ferrari was seized by the Liquidators.
- During this time there was a discussion between BMW and the Liquidators in respect of dealing with the disclaimer previously issued.
BMW’s PPS registration
- The Liquidators relied on BMW’s PPS registration being defective under section 165 of the PPS Act or seriously misleading within the meaning under section 164(1) of the PPS Act as a reason to allege that:
- The disclaimer issued by the Liquidators was not valid; and
- The Ferrari vested in the Company,
and further relied on Justice Brereton’s analysis in the matter of One Steel Manufacturing Pty Limited (administrators appointed)  NSWSC 21 (“One Steel”). Albeit a different defect was looked at in this case, the Court held that a financing statement which recorded a Company’s ABN instead of a Company’s ACN was a defective registration for the purposes of section 164(1)(b) of the PPS Act.
- BMW conceded that its registration was defective as it was made against the Company’s ACN rather that the ABN as required under item 2 of 1.5 of schedule 1 of the PPS Regulation.
- As BMW’s security interest was defective, the Court held that BMW’s security interest was unperfected.
- As a consequence of the Court deeming BMW’s security interest as unperfected resulted in the Ferrari vesting in the Company.
Court’s determination in respect of the Disclaimer
- The Court was requested to look at the disclaimer issued by the Liquidators.
- The Court held that the notice of disclaimer was void, of no effect and is a nullity.
This decision is important as it paints a picture of the consequences of having an unperfected security interest, which includes responding to Court applications.
Benefits of correctly perfecting a security interest under the PPS Act
A benefit of perfecting a security interest under the PPS Act is the fact that the registration may have the highest ranking in priority of the asset registered and provide you with rights over the property or other interests in the property. A detriment of not perfecting a security interest under the PPS Act may result in your secured interest not being perfected as held in the Rose Guerin decision.
How Frank Law can assist you or your business
Frank Law is regularly engaged to provide advice to Insolvency Practitioners and creditors in respect of PPSR registrations.
Recently Frank Law was approached by a prominent Liquidator for urgent advice in respect of whether a top tier bank had a perfected security interest. For this example, we will refer to the top tier bank as the Yellow Bank. The background facts are:
- The Company was the Trustee Company for a Trust.
- The Trustee Company on behalf of the Trust entered into a financing arrangement with the Yellow Bank for the purchase of high value IT equipment.
- The high value IT equipment was purchased by the Trustee Company on behalf of the Trust.
- The Yellow Bank registered a PPS registration on the Company’s ABN and not the Trust’s ABN.
- The Company went into liquidation which resulted in the high value IT equipment vesting in the Company.
- The Yellow Bank asserted that they had a perfected security interest.
- We wrote to the Yellow Bank (who were extremely aggressive) and set out the legislation and recent cases which sets out the requirements of a perfected security interest in respect of trust property.
- In short, the Yellow Bank eventually conceded that it did not have a perfected security interest in respect of the high value IT equipment.
Frank Law can assist you if you have any urgent questions or concerns in respect of the PPS Act Regime.
This is not legal advice.