IPA PPSR Briefing: Rights of Subrogration

PPSA, SUBROGATION AND THE RIGHT TO REGISTER

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With Rhonda Arnott, B2B Lawyers

Tamarind Leigh BegleySAI Global

Your Hosts

In more than 15 years of legal practice, Rhonda has advised and represented a large range of national and international clients, in capital raisings, corporate restructures, mergers and acquisitions.

Rhonda also advises boards and internal committees in relation to corporate governance, conflicts of interest, related party transactions, continuous disclosure and compliance with the PPSR, Corporations Act and ASX Listing Rules.

About the Presenter

BACKGROUND

• Personal Property Securities Act 2009 (Cth) (PPSA) came into force on 30 January 2012

• New “rights” can be registered on the Personal Property Securities Register (PPSR)

• Equitable doctrine of subrogation is registrable to recognise an equitable remedy

WHAT IS SUBROGATION?

“The substitution of one person in the place of another with reference to a lawful claim, demand or right so that he who substitutes succeeds to the rights of the other person in relation to the debt or claim and its rights or remedies.” – West’s Encyclopedia of American Law, 2nd Edition

BorrowerPerson B

GuarantorPerson D

GuarantorPerson C

LenderPerson A

Guarantee/GSAGuarantee/G

SA

1st G

SA

$

EXAMPLE 1A

BorrowerPerson B

GuarantorPerson D

GuarantorPerson C

Lender (A)

LenderPerson A

EXAMPLE 1B

repays

$

1st GSA rights

Guarantee

GSA

LEGAL RIGHT OF SUBROGATION • Section 52 of the Supreme Court Act 1968

(Vic)

• Section 3(1) of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW)

• Section 4 of the Mercantile Act 1867 (Qld)

PRE-PPSA – RECOGNISING SUBROGATION

A Guarantor (C) pays out Lender (A) relying on subrogation would need to:

• Request assignment of ASIC charge from Lender to Person C

Consent of Lender Execution of ASIC Form 312

OR

• Rely on other evidence to demonstrate that the debt had been paid by Person C

PRE-PPSA – RECOGNISING SUBROGATION

• Not immediately evident that Person C had any right to claim payment for the repaid debt

• No where to search

• IP potentially exposed in event of making payment of excess funds to later ranking registered security holder

POST-PPSA

• A secured party can register its interest in collateral as against a grantor

CASE STUDY

NAB

Borrower

Pre PPSA30/1/12

GSA$

Guarantor

3/8/12

Pays out NAB

9/9/12

NAB discharges registration

01/3/13

Gor

PPSR

9/7/13

Liquidation

$

CASE STUDY

3/8/12

Pays out NAB

9/9/12

NAB discharges registration

01/3/13

Gor

PPSR

9/7/13

Liquidation

More than 20 Bus days

Less than 6 months

s588FL Corps Act securityInterest vests in Co.

S588FM CORPORATIONS ACT

Court make fix a time for a later registration time (ie longer than 20 business days under s588FL) where:

• Failure accidental, inadvertent or note nature to prejudice creditors/shareholders; or

• Just and equitable to do soEg: Barclays Bank plc [2012] NSWSC 1095 (2 month

delay) Cardinia Nominees Pty Ltd [2013] NSWSC 32 (5

Business days)

NOTIFICATION & LINKING

• PPSR provides scope for notification of a person’s right of subrogation

• A new registration can be linked to an existing registration

EXAMPLE CONT.

Guarantor could:

• Create a new secured party group

• Register a security in the same terms as the Lender’s security (eg. ALLPAAP); and

• Link its registration to the Lender’s earlier registration

ADVANTAGES

• Requires no action on behalf of Lender

• Provided registration by Guarantor is prior to discharge by Lender, a link based on subrogation will be evident to anyone searching the PPSR

• Registration now possible against an individual borrower or guarantor

PPSR SEARCHCERTIFICATE

Run an organisation grantor search on B Pty Ltd

List panel info exports to CSV. file

Saved as excel file

SAMPLE SPREAD SHEET

SAMPLE SPREAD SHEET

WHAT DOES THIS MEAN FOR YOU?

• If the Borrower is placed into liquidation, an IP may mistakenly pay any excess funds to A Pty Ltd/B (Melb) Pty Ltd holding the 2nd/3rd security.

• However, the Guarantor has obtained the right to stand in the shoes of NAB as Lender with the right to receive funds as the 1st ranked secured creditor.

CONCLUSION

• Pre-PPSA – determined priority based on review of ASIC charges and documentation presented

• Post-PPSA – alerted to claims of subrogation by linking of registrations

• Interpret PPSR search results, identify rights of subrogation

Reduce risk of overlooking a creditor with priority

QUESTIONS?

For a copy of this presentation and more info visit www.encompasscorporation.com