Re Dairy Soils Pty Ltd (in liq) [2025] VSC 540

Legal update

Pursuant to section 588FM of the Corporations Act 2001 (Cth), the plaintiff sought orders for an extension of time to register its Purchase Money Security Interests (PMSIs) over livestock and machinery in the approximate value of AU$1,425,600 supplied to Dairy Soils.

The plaintiff approached the Court on the basis that, if the relief it sought was not granted, the PMSIs over the assets acquired by Dairy Soils would be void as against the liquidator.

Under the Personal Property Securities Act 2009 (Cth) (PPSA), a security holder is generally required to register their security interest within twenty business days after the security interest arises.

The plaintiff submitted that, due to a lack of legal advice on the issue, it did not register its security interests for approximately three and a half years. Further, even when it did register those PMSIs, it did so incorrectly, and accurate security interests were not lodged until approximately two months later. Dairy Soils went into liquidation four days later.

In the three-year and eight-month period it took for the plaintiff to get its registrations right, thirty-five security interests were registered against the defendant on the Personal Property Securities Register.

Judgment

Waller J breaks down his decision into two elements:

1. Does the Court have jurisdiction to make the orders sought due to the inadvertent failure to register; and then
2. If it does, would it exercise its discretion to do so, notwithstanding that doing so would prejudice the position of creditors.

Waller J accepted that the Court’s jurisdiction was enlivened due to the inadvertent non-registration, which came about due to the failure of relevant legal representatives to advise on the requirement to register the interest within the prescribed time.

Gathering several authorities on the point, his Honour emphasised that the mere establishment of jurisdiction does not require the Court to exercise its discretion.

Waller J declined to grant the extension of time for two major reasons:

1. To reduce the pool of assets by AU$1,425,600 would be a “significant detriment” to recovery for employees’ entitlements and for unsecured creditors. To grant an extension of time to register the interests would result in “significant” prejudice to the position of creditors. To allow for the registration to occur, unsecured creditors would go from an expected dividend of 26 cents in the dollar to no dividend at all.
2. The protections that s588FM provide to the consequences of inadvertence, did not outweigh the “legitimate expectations and crystallised rights of unsecured creditors” due to the approximate three and a half year delay and the significant prejudice that unsecured creditors would suffer.

Implications

No matter how innocent the mistake, if inadvertence results in hardship being imposed on others, secured creditors cannot expect the Court to always come to their rescue.

A security interest is not worth much more than the paper it is printed on unless and until it is registered.