TGIF 3 October 2025 – Court denies creditor’s attempt to stop security interest vesting in liquidated company

This week’s TGIF considers the recent decision in Re Dairy Soils Pty Ltd (in Liq) [2025] VSC 540, which highlights the risks of failing to register a security interest within time, particularly where the grantor goes into liquidation. 

Key takeaways

• Grantees of security interests need to be acutely aware of strict timeframes that apply to registering security interests under the Personal Property Securities Act 2009 (Cth) (PPSA), or else risk the security interest vesting in the grantor upon its liquidation.
   
• Even a legitimate reason for non-registration within time (including inadvertence) may not persuade a court to restore a security interest. 
   
• Where a grantor of a security interest has entered liquidation, the crystallised interests of creditors in the secured property will make it even more difficult to restore a security interest.

Background

Agfor Rural Pty Ltd (Agfor) was granted security interests in livestock and machinery by Diary Soils Pty Ltd (Dairy Soils) pursuant to a lease agreement first entered in July 2021. 

Agfor’s legal advisors did not advise Agfor of the need to register the security interests within 20 business days of the interests being created, nor the potential consequences of failing to do so.

In January 2025, Agfor was advised to urgently register the security interests. Agfor attempted to do so but the registrations were not accurate. It was not until 13 and 17 March 2025 that this was rectified. 

On 21 March 2025, Dairy Soils went into liquidation. As Agfor had not registered the security interests within the statutory timeframe, those interests vested in Dairy Soils on its entry into liquidation. 

Agfor therefore filed an application under section 588FM of the PPSA seeking orders for the Court to fix a later time by which the security interests had to be registered on the Personal Property Securities Register (PPSR).   

The issues

The Court had to determine whether it was appropriate to exercise its discretion to grant an extension of time where the effect would be to extinguish the rights of unsecured creditors in the secured property.

Decision

Waller J accepted the Court had jurisdiction to make an order of the kind sought by Agfor given Agfor’s inadvertence in failing to register the security interests within time. 

With the Court’s jurisdiction enlivened, the key question was whether the Court should exercise its discretion to make the orders sought by Agfor, having regard to broader considerations of equity and justice. 

After considering the relevant authorities, Waller J identified the entry of Dairy Soils into liquidation and the resultant crystallisation of the rights of unsecured creditors as key factors in the Court’s balancing exercise. 

Waller J reasoned that, for the Court to exercise its discretion in favour of Agfor in these circumstances, there needed to be factors of sufficient significance to outweigh the adverse impact on unsecured creditors in granting relief. Waller J concluded there were no such factors in this case and therefore declined to grant the orders sought by Agfor. 

The delay in registration was substantial and proper registration only occurred shortly prior to Dairy Soils entering liquidation. When the liquidation commenced, the rights of unsecured creditors in the secured property had crystallised. 

The evidence demonstrated unsecured creditors would receive a dividend of 26 cents if the orders sought by Agfor were not made. Alternatively, creditors would receive nothing if Agfor was granted relief. The value of the relevant assets was such that creditors would suffer significant detriment if they were removed from the pool available for distribution. 

Comment 

This case serves as an important warning to promptly register security interests under the PPSA. Failure to do so will expose a creditor to draconian consequences. 

The case makes it clear that inadvertence and good faith will not necessarily save a security interest from vesting in the grantor upon their liquidation.