There is no requirement to file the underlying agreement that gives rise to a security interest on the Personal Property Securities Register (Register). This has the potential to give rise to fake or sham registrations because the Register cannot determine if a registration is in fact a genuine security interest. This creates a situation where the Register can be compromised by the lodgement of sham registrations.
If there are no grounds to register a security interest, the party that is subject to (or burdened by) the security interest can go through the administrative procedure of Amendment Demand Process. This process can be used regardless of whether the registration was an innocent mistake or an intentional decision to register a sham financing statement. The effected party can apply to court for assistance if this process does not produce the desired outcome.
In the case of Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd [2014] VSC 217, three companies had financing statements registered in respect of their personal property with no basis. Despite demands by the applicants to remove the security interests, the defendants stated that if the registrations were removed then new financing statements would be lodged on the register.
The Supreme Court held that the defendants were not entitled to register a security interest over the applicants’ personal property as they did not have a registrable security interest. This is the first instance of an Australian court intervening to prevent the registration of sham financial statements.
The court relied on its legislative power under the Supreme Court Act (1986) (Vic) to grant an injunction, which prevented the defendants from registering further security interests in relation to the applicants property. Costs were also ordered against the defendants.
This case demonstrates the importance for having grounds for registration. The transaction giving rise to a security interest must be genuine and agreed between the parties to secure payment or performance of an obligation.
For further information please contact Meagan O’Connor or Luke Duggan.
Meagan O'Connor
Principal
Sladen Legal
+61 3 9611 0106
moconnor@sladen.com.au
Luke Duggan
Lawyer
Sladen Legal
+61 3 9611 0176
lduggan@sladen.com.au