The Personal Property Securities Act 2009 (Cth) (PPSA) has posed many challenges for financiers and lessors since its commencement, as it (amongst other things) sets out detailed rules about what is required in order to have an effective registration on the Personal Property Securities Register (the PPSR). The decision in In the matter of OneSteel Manufacturing Pty Limited (administrators appointed)  NSWSC 21 demonstrates the critical importance of making registrations strictly in accordance with the requirements set out in the PPSA.
Key learnings from the OneSteel case include:
- registering a financing statement using the ABN of a company grantor instead of its ACN will render the registration seriously misleading;
- a registration which is seriously misleading will not cease to be seriously misleading just because a person searching the PPSR happens to discover the registration - the PPSA does not require that a person is actually misled in order for a registration to be ineffective;
- section 252B of the PPSA, which provides that the PPSA does not apply to the extent that it results in the acquisition of property from a person other than on just terms, does not render sections 267 and 267A of the PPSA (which provide for the vesting in the grantor of certain unperfected security interests upon the insolvency of the grantor) of no effect;
- an application under section 588FM of the Corporations Act 2001 (Cth) to extend the time for perfecting a security interest for the purposes of section 588FL(2) of the Corporations Act (which deals with the effect of not registering security interests within the specified period) to avoid the risk that a security interest may vest in the grantor upon the grantor's insolvency will not be granted if the security interest has already vested in the grantor - section 588FM cannot be used to 'resurrect' an already vested security interest; and
- an application under section 293 of the PPSA to extend the date for registering a financing statement in respect of a security interest that is a purchase money security interest (PMSI) in order for the PMSI to take priority over other security interests which attach to the same goods will not be granted if the security interest has already vested.
The facts of the case are as follows:
- On 16 October 2014, Alleasing Pty Limited (Alleasing) and OneSteel Manufacturing Pty Limited (OneSteel) entered into a Master Lease Agreement (the MLA). Under the MLA, when OneSteel wished to lease goods from Alleasing, it would deliver a leasing schedule to Alleasing, which would then lease the goods to OneSteel on the terms set out in the MLA and the schedule.
- On 1 May 2015, OneSteel commenced leasing from Alleasing a Striker crushing and screening plant for a term of six years (the Plant Lease). OneSteel subsequently delivered another leasing schedule to Alleasing and, on 1 July 2015, commenced leasing spare parts for the crushing and screening plant, also for a term of six years (the Parts Lease).
- Both the Plant Lease and the Parts Lease were PPS leases pursuant to section 13 of the PPSA and, as a consequence, in order to safeguard its interests in the goods, Alleasing had to register financing statements on the PPSR.
- On 17 October 2014, Alleasing registered a financing statement on the PPSR in respect of the security interest arising under Plant Lease, and on 7 July 2015 it did so again in respect of the Parts Lease.
- Section 153 of the PPSA requires a financing statement to include, relevantly, the grantor's details as prescribed in the Personal Property Securities Regulations 2010 (Cth) (the Regulations). Part 1.3 of Schedule 1 of the Regulations provides that, if the grantor or a secured party is a body corporate that has an ACN, the financing statement must be registered using that body corporate's ACN. However, Alleasing registered both financing statements using OneSteel's ABN, not its ACN.
- On 7 April 2016, OneSteel appointed administrators.
- On 10 June 2016, the administrators informed Alleasing that they considered Alleasing's registrations in relation to the Plant Lease and the Parts Lease to be defective and ineffective, and that, as a result of section 267 of the PPSA, Alleasing's security interest – which in the context of a PPS Lease is the lessor's interest in the goods – had vested in OneSteel.
- On 14 June 2016, Alleasing registered new financing statements in respect of the Plant Lease and the Parts Lease, this time using OneSteel's ACN as the grantor identifying data. On 17 June 2016, Alleasing amended its original registrations to include OneSteel's 9 digit ACN.
The Problem for Alleasing
Section 164 of the PPSA provides that a registration is ineffective if there is a seriously misleading defect in the data relating to the registration or if there is a defect of a kind described in s165 of the PPSA.
Section 165(b) of the PPSA provides that there will be a defect in a registration if a search of the PPSR by reference only to the grantor's details which are required to be included in a financing statement under section 153 of the PPSA would not disclose the registration.
If there is such a defect in the registration, the security interest will be unperfected and may become capable of vesting in the grantor on the appointment of an administrator or the winding up of the grantor, pursuant to section 267 or section 267A of the PPSA.
Alleasing arguments included that:
- its registrations were effective because the 11 digit ABN used
to describe OneSteel in the registrations included OneSteel's 9
digit ACN number.
The court rejected this argument on the basis that a search of the PPSR using OneSteel's ACN alone would not have disclosed the registrations.
The court also rejected Alleasing's argument that section 1344 of the Corporations Act (which provides that if a company is required or permitted to use its ACN under a law of the Commonwealth administered by the Australian Securities and Investments Commission (ASIC), it may use its ABN if the last 9 digits of the company's ABN are in the same order as the last 9 digits of its ACN) assisted Alleasing as the PPSA is not administered by ASIC.
- the registration was not seriously misleading because a person
can perform "combined grantor searches" using B2G
interfaces which, if only the ACN were entered, would nonetheless
reveal registrations made using the grantor's ABN. Indeed, the
administrators had discovered the registrations by, seemingly,
doing such a search.
However, section 171 of the PPSA provides that a person may search the PPSR by reference to, relevantly, the grantor's details required under section 153 of the PPSA (i.e., in the present circumstances, OneSteel's ACN). In noting that neither section 153 nor Part 1.3 of Schedule 1 of the Regulations refers to a company's ABN, the Court held that any search done using information other than the required data was an unauthorised search.
Because a search authorised by the PPSA would not have disclosed the original registrations, the Court concluded that Alleasing's original registrations were ineffective.
- section 252B of the PPSA (which provides that the PPSA does not
apply to the extent that it results in the acquisition of property
from a person other than on just terms) prevented the vesting
provisions in the PPSA from applying as they would result in a
person acquiring property other than on just terms. If the vesting
provisions were to be applied, it would result in OneSteel
acquiring Alleasing's valuable property and leaving Alleasing
to prove in the insolvency of OneSteel as an unsecured creditor,
which was not just.
However, the Court found that any "acquisition" effected pursuant to section 267 or section 267A of the PPSA was not an acquisition of property but rather was a genuine adjustment of competing rights, claims and obligations between persons with interests in the same goods. As a consequence, section 252B was not relevant.
- if it was not accepted that the original registrations were
effective, an order under s588FM of the Corporations Act should be
granted extending the time for perfecting a security interest for
the purposes of section 588FL(2). Broadly, s588FL(2) provides that
a security interest may vest in a company grantor if it is
perfected after the later of (a) six months prior to the date that
an administrator is appointed or that the winding up of the company
grantor commences and (b) 20 business days after the date that the
security agreement giving rise to the security interest came into
Section 588FM(2) of the Corporations Act provides that an order extending the time for registration may be granted if the court is satisfied that (a) the failure to register was accidental or inadvertent or would not cause prejudice to other creditors or (b) it is just and equitable to grant the order.
Alleasing submitted the failure to register the financing statements earlier was accidental or due to inadvertence and/or was not of such a nature as to prejudice the position of creditors or shareholders. However, OneSteel submitted that the power to extend time was not enlivened, because at the time the administrators were appointed the security interest had not been perfected and the security interest had vested.
The Court agreed with OneSteel, noting that an order to extend the time for registration could not resurrect a security interest which had already vested. The security interest needed to have been perfected prior to the administrators being appointed. The same reasoning was applied to reject Alleasing's application for an order under section 293 of the PPSA to extend the date for registering a financing statement in respect of a security interest that is a PMSI in order for the PMSI to take priority over other security interests which attach to the same goods.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.