First sanction imposed for an improper registration on the Personal Property Securities Register

Introduction

For the first time since inception of the Personal Property Securities Act 2009 (Cth) (PPSA), a civil penalty has been imposed for breaching section 151, in Registrar of Personal Property Securities v Brookfield [2024] FCA 29, a decision of Sarah C Derrington J. The Respondent (an individual, Mr Brookfield), was ordered to pay a pecuniary penalty of A$30,000 for contravening sections 151(1) and (2) of the PPSA (and may also have to pay costs).

Under section 151(1), a person must not apply to register a financing statement on the Personal Property Securities Register (PPSR) unless they believe on reasonable grounds that they are, or will become, a secured party in relation to the relevant collateral. If a person registers without holding that belief and it is subsequently determined that they did not have a registrable security interest, they could suffer hefty civil sanctions. Section 151(2), which also attracts a civil penalty, requires a person to end a registration within 5 business days where there is no longer a reasonable belief of a security interest.

Initially following the enactment of the PPSA, both practitioners and clients were concerned with the potential impact of section 151, because the limits of what is or is not a security interest was still being developed judicially. Some uncertainty in that regard continues today. Australia’s civil penalty consequences for breaching this provision are also far more onerous than other overseas counterparts. Section 151 imposes maximum penalties of 50 penalty units per offence for an individual and 250 penalty units per offence for a body corporate. A “penalty unit”, calculated in accordance with the Crimes Act 1914 (Cth), is currently $313.

Yet those concerns were quickly allayed, as many even patently incorrect registrations were often removed or resolved via communications directly with the secured party, or through the amendment demand process involving the Personal Property Securities Registrar. While a sanction has for the first time, been imposed, the circumstances of the case are such that there is no real cause for alarm among those who are reasonably diligent about such matters.

The facts were briefly as follows: a “Rent Roll Sale and Purchase Agreement” (the Agreement) was entered into between Blueprop Pty Ltd (as vendor), Real Estate Now Pty Ltd (as purchaser), and Mr Mark Mergard (as warrantor) in July 2015. In October 2016, Bluecorp Pty Ltd purported to assign the debt arising under the Agreement (owed to it by Real Estate Now Pty Ltd) to Mr Ian Brookfield. Between March 2016 and March 2019, Mr Brookfield made several PPS registrations in respect of a security interest over the “consumer” and “commercial” property of Real Estate Now Pty Ltd, and over property of a company owned by Mr Mergard – noting Mr Mergard’s company was not a party to the Agreement, as Mr Mergard was a party as warrantor in his personal capacity (Previous Registrations).

None of these Previous Registrations formed the basis of the action by the Registrar, but are important context to the outcome. The Registrar served Mr Brookfield with six amendment notices, noting and alerting Mr Brookfield to the Registrar’s position that no collateral had been identified against the alleged debt to be secured, and inviting him on at least four occasions to challenge that conclusion before the Administrative Appeals Tribunal (AAT). Mr Brookfield did not challenge any of those decisions in the AAT.

Instead in 2020, he proceeded to register another financing statement in respect of a security interest allegedly granted by Real Estate Now Pty Ltd, to him as the secured party, in the collateral class “all present and after acquired property”. This registration was removed following correspondence between Mr Brookfield and the Deputy Registrar, where again the Registrar’s conclusion about the lack of a security interest was explained and Mr Brookfield was informed of his rights to challenge the Registrar’s decision in the AAT. Yet again a similar registration was then made by Mr Brookfield in 2022, which was again removed by the Registrar.

The Registrar ultimately brought proceedings in May 2023 on the basis of the 2020 and 2022 registrations, after attempting several times to resolve the matter by other means. Mr Brookfield, throughout the process, asserted that “when an asset is sold, that asset becomes encumbered until such time as it is paid for in full” so he must have a security interest (which, of course, pays no regard to the elements of section 12(1) of the PPSA), and while he was firm in asserting that he was “entitled to secure [his] financial interest”, at no point was evidence of any valid security interest provided.

Her Honour considered that although Mr Brookfield had a reasonable belief that he was owed a debt by Real Estate Now Pty Ltd, the relevant inquiry was whether there were reasonable grounds for his belief that he was a secured party. Having regard to the previous course of conduct between Mr Brookfield and the Registrar, her Honour concluded at [75] that (emphasis added):

"The clear correspondence from the Deputy Registrar to Mr Brookfield in respect of the Previous Registrations is objective evidence that Mr Brookfield’s belief that he held a security interest that was registrable on the PPSR was not reasonable.”

Her Honour held that Mr Brookfield contravened sections 151(1) and 151(2) by applying to register financing statements and failing to end the registrations within 5 business days respectively. As there was no objective basis for Mr Brookfield to believe that he was, or would become, a secured party in relation to any collateral his belief was not “reasonable”.

Although the total maximum penalty arising from the contraventions was $315,900, the Registrar argued for a total penalty of $15,000 for both contraventions. Her Honour imposed a total penalty of $30,000, on the basis that the contraventions were serious, and the penalty imposed should operate as a deterrent to those who may seek to use the PPSR for inappropriate purposes.¹

The parties are yet to make submissions on costs.

A call to action?

Her Honour noted that despite the PPSA having been in force for 12 years, this appeared to be the first time the Registrar had brought civil penalty proceedings under section 151 (possibly because of the difficulty of proving the absence of a reasonable belief). She noted this was a clear case for the Registrar to invoke the civil penalty provisions. In what may prompt more court action by the Registrar, she referred to the Registrar’s duty to maintain the integrity of the Register and to protect the public from obvious abuses based on the Registrar’s knowledge and own experience of the manner in which particular persons (such as Mr Brookfield) have purported to use the PPSR.²

Takeaways

The patience of the Registrar is to be admired, but this case sends a clear message to use the correct channels if you disagree with a decision of the Registrar. While Mr Brookfield eventually applied to challenge the decisions in the AAT on 31 October 2023, but this was a disingenuous attempt to follow proper process given the application was made after the matter had been listed for the trial, and well outside the time limit prescribed for an application for review (s 29(2)(a) of the Administrative Appeals Tribunal Act 1975 (Cth)).

The decision also provides helpful guidance on what constitutes a reasonable belief in the context of section 151 of the PPSA. If the existence of a security interest is doubtful, specialist legal advice should be sought before registering a security interest, or in maintaining a registration.