Goods Supplied On Credit - Notice of Registration Not Given
The Business the subject of this scenario (whom I will call The Grantor) relevantly involved purchasing some of its trading stock on credit from other businesses. It had three registrations on the Personal Property Securities Register (“PPSR”) against it. It knew about one of them as it had received notice about it, in accordance with the PPSA requirements. (S.157)
The Grantor received goods supplied on credit. The Suppliers of those goods registered their interests on the PPSR. However The Suppliers did not provide The Grantor with any notification of those registrations, nor did The Grantor receive Notice about those two registrations in any other form. Therefore The Grantor had no idea that the registered security interests existed in respect of those supplied goods.
What is the significance of no notice of registration of the Security Interest by the Suppliers being received by the Grantor?
The statement holder who is given a verification statement, under section 156, in relation to a registration event concerning a registration, must ensure that a notice of the statement, in the approved form, is given to the following persons as soon as reasonably practicable after the time of the registration event:
(a) a person registered as a grantor in the registration immediately before the time of the registration event;
(b) a person registered as a grantor in the registration immediately after the time of the registration event. (See s.155 & s.157).
Whilst S.157 (4) says contravention of s.157 (1) is a s.13 of the Privacy Act 1988 breach, the PPSA appears silent at this point on whether the failure to give the requisite notice defeats the priority claim of the Supplier over the Grantor in relation to the secured interest property.
S275 requires the Secured Party to provide certain information relating to the subject security interest to the Grantor.
- How do you make a request under s.275 if you do not know a security interest registration exists?
- How do you know to search?
- Are you obligated to search?
How is perfection of the interest in personal property affected by the failure of the Secured Party to give the requisite Notice to the Grantor?
If the subject goods are sold in the ordinary course of business:
- Will a bona fide purchaser for value without notice take the goods?
- Will The Grantor be liable to The Supplier for the value of the subject goods?
A Bona Fide Purchaser for Value of the subject goods takes them free of any Security Interest, if the personal property was sold in the ordinary course of the business of the seller, which was selling personal property of that kind. (See s.46)
Further, Registration of data does not constitute constructive notice of the existence of the subject security interest. (See s.300)
In relation to the subject secured personal property, the rights of the Secured Party are subrogated to the rights (if any) of the Transferor and any predecessor of the Transferor (including the right to receive any part of the purchase price for the property which has not been paid). (See s.53)
The Suppliers claim the proceeds of sale from The Grantor
Proceeds is defined in s.31.
Constructive knowledge is defined in s.297 and as I said earlier Registration of data does not constitute constructive notice of the existence of the subject security interest. (See s.300) On these facts there appears to be no reason to impose constructive knowledge of the security interest upon The Grantor or the Bona Fide Purchaser For Value Without Notice. Any Priorities argument here would be resolved against the Suppliers.
There appears to be no adverse effect on registration from failing to give notice of the registration of a security interest to The Grantor.
The effect on the security interest of that failure to give notice of the registration of a security interest to The Grantor is a little different. The priority of The Suppliers seems to be lost to The Grantor where the obligation to search cannot be imposed upon The Grantor or The Purchaser.
The Suppliers may have other opportunities within the law to pursue their rights against The Grantor for the proceeds of sale, but that is not the subject of this piece. This piece is constrained to the PPSA and its impact on the situation.
If the foregoing assessment is correct, is that outcome desirable?
Is another outcome more desirable?
Ross Bowler LLB