The liquidator and the Ferrari: when an invalid disclaimer means a win

Rohrt, in the matter of Rose Guerin and Partners Pty Ltd (in liq) v Princes Square W24NY Pty Ltd [2021] FCA 483 (13 May 2021)

Justice Anderson finds that a defectively registered security interest meant that there was nothing for liquidators to validly disclaim, leaving them with a valuable unencumbered asset.

Rose Guerin and Partners Pty Ltd (the Company) and BMW Australia Finance Ltd (BMW) entered into a chattel mortgage agreement, to repay a loan for the purchase of a Ferrari. BMW registered its security in the Ferrari on the Personal Property Securities Register (the PPSR).

The Company defaulted on the loan when $465,633.73 remained owing. Liquidators were appointed. They notified BMW that they had disclaimed the Ferrari as property of Company under s 568(1)(d) of the of the Corporations Act 2001 (Cth) (the CA) because it was “property that may give rise to a liability to pay money or some other onerous obligation”.

The liquidators later obtained a warrant to seize the property of the Company. They found the Ferrari and took possession of it. The liquidators wrote to BMW advising that their disclaimer of the Ferrari was a nullity. They said that the PPSR registration was defective and consequently BMW’s “unperfected” security interest vested in Company.

According to the liquidators, there was no “onerous” property to disclaim, the Ferarri was unencumbered and BMW was merely an unsecured creditor of the Company. BMW disagreed. The liquidators sought declaratory relief.

At the hearing BMW made two concessions with which Justice Anderson agreed.

First, the registration was defective. As the Company purchased the Ferrari in its capacity as trustee of a trading trust, the regulations to the PPSA required it to register the security against the ABN associated with the trading trust, not the ACN of the Company. Strict compliance is necessary so that the Register can be searched properly.

Secondly, BMW’s chattel mortgage was a security interest for the purpose of s 12(2)(c) of the of the Personal Property Securities Act 2009 (the PPSA). Because of the defective registration, by operation of ss 267(1) and (2) of the PPSA, the security interest was “unperfected” at the date of the Company entering administration, and so vested in the grantor of the security interest, being the Company.

BMW unsuccessfully argued that the disclaimer was effective and not a nullity. In considering s 568(1)(d) of the CA, his Honour found that the obligations in the financing agreement could not be characterised as “property” giving rise to a liability to pay money – they were plainly personal obligations. The Ferrari was not property giving rise to some other onerous obligation – it was, by operation of the vesting rule in s 267 of the PPSA an unencumbered asset of the company valued at over $300,000 and there was no evidence of any onerous servicing requirements.

Finally, there was no discretionary reason to refuse declaratory relief to the liquidators. His Honour was satisfied with their explanation as to why they seized the Ferrari during the search, having only just turned their minds to the defective registration after signing the disclaimer.

This case reminds creditors to get registrations and formalities correct, and for liquidators to check such matters as a first step.