BMW Australia Ltd v Brewster & Anor; Westpac Banking Corporation & Anor v Lenthall & Ors

The High Court of Australia considered appeals in two related matters, *BMW Australia Ltd v Brewster & Anor* and *Westpac Banking Corporation & Anor v Lenthall & Ors*. The central dispute concerned the interpretation and application of provisions within the *Personal Property Securities Act 2009* (Cth) (PPSA) relating to the perfection of security interests in circumstances where a grantor grants a security interest to a secured party, and subsequently, that grantor becomes a debtor in bankruptcy. The primary question was whether a security interest granted by a company that later entered into a deed of company arrangement, and then had a liquidator appointed, could be perfected by registration on the Personal Property Securities Register (PPSR) after the grantor had become a bankrupt.

The High Court was required to determine whether a security interest registered on the PPSR after the grantor had become a bankrupt could be effective against the trustee in bankruptcy. Specifically, the Court had to consider the interplay between the PPSA's registration provisions and the operation of the *Bankruptcy Act 1966* (Cth), particularly in relation to the vesting of property in a trustee in bankruptcy. The core legal issue was whether the registration of a security interest after the commencement of bankruptcy proceedings could cure a defect in perfection that existed at the time of bankruptcy.

The Court reasoned that the PPSA operates to create and perfect security interests. However, the *Bankruptcy Act* vests the property of a bankrupt in the trustee. The Court held that a security interest that is not perfected at the time of bankruptcy cannot be perfected retrospectively by registration after the commencement of bankruptcy. This is because, upon bankruptcy, the grantor's property vests in the trustee, and the grantor no longer has the capacity to grant or perfect a security interest in that property. Therefore, any registration of a security interest after the commencement of bankruptcy is ineffective against the trustee. The Court applied the principle that perfection must occur before the vesting of property in the trustee.

The High Court allowed the appeals, finding that the registrations of the security interests were ineffective against the respective trustees in bankruptcy. Consequently, the secured parties did not have priority over the trustees in relation to the assets subject to the unperfected security interests.