IN BRIEF - PROPER REGISTRATION OF SECURITY INTERESTS ON THE PPSR IS A MUST
The recent decisions in OneSteel Manufacturing Pty Limited (Administrators Appointed)  NSWSC 21 and Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in Liquidation) (Receivers and Managers Appointed)  NSWCA 8 serve as a timely reminder of the importance of registering security interests correctly on the Personal Property Securities Register (PPSR) to avoid assets vesting in a company upon it being placed into external administration.
ALLEASING REGISTERS SECURITY INTEREST ON ONESTEEL'S ABN INSTEAD OF ACN
In the matter of OneSteel Manufacturing Pty Limited (Administrators Appointed) the facts were that Alleasing leased a crushing and screening plant and spare parts for the crusher to OneSteel.
While Alleasing registered its security interest on the PPSR, Alleasing incorrectly included OneSteel's ABN in the entry instead of OneSteel's ACN.
Subsequently, OneSteel was placed into administration.
ADMINISTRATORS ASSERT THAT INTEREST IN ASSETS VESTED IN ONESTEEL UNDER PERSONAL PROPERTY SECURITIES ACT
OneSteel's administrators wrote to Alleasing claiming that the registrations were defective and ineffective and, consequently, asserted that Alleasing's interest in the crusher and the parts vested in OneSteel under the vesting provisions in section 267 of the Personal Property Securities Act 2009 (PPSA).
Alleasing attempted to fix the defective registration by amending the registration and by lodging new financing statements but this time with OneSteel's ACN. Alleasing also commenced court proceedings seeking a declaration that the security interests were validly perfected and did not vest or, alternatively, an order under section 588FM of the Corporations Act 2001 fixing the time for registration to the date that the second registrations were lodged.
The main issues were:
- Is a registration against a corporate grantor's ABN rather than its ACN "seriously misleading", and therefore ineffective, for the purposes of section 164(1)(a) of the PPSA or otherwise ineffective under section 164(1)(b) and section 165(b) of the PPSA?
- Can a court make an order under section 588FM of the Corporations Act (Act) to extend the time for registration for the purposes of section 588FL(2)(b)(iv) of the Act where the relevant security interest was not perfected at the time administrators were appointed to the insolvent company?
EFFECTIVENESS OF ALLEASING'S SECURITY INTEREST AND RIGHTS CONSIDERED BY NSW SUPREME COURT
The Court held that:
- A registration of a security interest against the ABN of a corporate grantor where the corporate grantor has an ACN will not perfect the security interest.
- Alleasing's failure to register its security interest against OneSteel's ACN meant that Alleasing's security interest was ineffective pursuant to sections 164(1)(b) and 165(b) of the PPSA and seriously misleading pursuant to section 164(1)(a) of the PPSA.
- When considering Alleasing's rights, it is the rights that were in effect as at the date of the administrator's appointment, being the original registration without the amendment to the ACN.
- Because the original registration was defective and ineffective as at the date of the administrator's appointment, and notwithstanding Alleasing's attempts to fix the error in its security registration, Alleasing had lost its rights in the crusher and spare parts and that those assets vested in OneSteel upon it being placed into administration.
- An extension of time is not available to validate the post-appointment registrations and amendments.
As a consequence, Alleasing lost its interest in the crushing and screening plant and spare parts for the crusher, lost its priority as a secured creditor (including all of the rights available to a secured creditor in respect of its security interest and the administration) and it was reduced to the position of an unsecured creditor.
SECURITY INTEREST UNPERFECTED DUE TO FAILURE TO REGISTER FINANCING STATEMENT ON THE PERSONAL PROPERTY SECURITIES REGISTER
In Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in Liquidation) (Receivers and Managers Appointed) the facts were that Forge had contracted with Horizon Power, a Western Australian statutory body, to design a power station at Port Headland, and supply and construct the necessary equipment for its operation.
To fulfil its obligations under that contract, Forge entered into a lease with General Electric Inc (GE), whereby GE would rent four turbine generators to Forge for use in the power station (Turbine Lease).
GE failed to register a financing statement on the PPSR in respect of GE's interest, as lessor, in the turbines. Accordingly, the security interest remained unperfected.
Shortly after the turbines were installed, Forge entered into voluntary administration, and subsequently liquidation.
Forge argued that the turbines vested in the company immediately before the administrators were appointed, pursuant to section 267(2) of the PPSA because the Turbine Lease was an unperfected security interest. GE's position was that it retained superior title over the turbines because the PPSA did not apply to the Turbine Lease, and therefore it was entitled to the return of the turbines.
The turbines had an approximate value of $60 million.
In Forge Group Power Pty Limited (In Liquidation)(Receivers and Managers Appointed) v General Electric International Inc  NSWSC 52, the Supreme Court at first instance held the turbines vested in Forge immediately before the administrators were appointed. Understandably, and no doubt due to the value of the turbines, GE appealed this decision.
MEANING OF FIXTURES UNDER SECTION 10 OF PERSONAL PROPERTY SECURITIES ACT CONSIDERED BY COURT OF APPEAL
The main issue on appeal was whether the four turbines leased by GE to Forge were fixtures within the meaning of section 10 of the PPSA.
Section 10 of the PPSA defines fixtures to mean "goods, other than crops, that are affixed to land."
LEASED TURBINES HELD NOT TO BE FIXTURES AND OUGHT TO HAVE BEEN REGISTERED ON PPSR
The Court of Appeal upheld the original judgment and determined that:
- GE was in the business of regularly leasing goods (as it was a "proper part of their business").
- The turbines were not fixtures, and as such the Turbine Lease was a PPS lease for the purposes of the PPSA and ought to have been registered on the PPSR.
- The turbines vested in Forge immediately before the appointment of voluntary administrators and GE lost the entirety of their title and interest in the turbines.
Again, an insolvency has robbed an intended secured creditor of its rights as a consequence of failing to comply with the PPSA strict regime.
LESSONS FOR SECURED PARTIES FROM THESE TWO DECISIONS
The two decisions are a timely reminder of the importance of secured parties ensuring that their security interests are properly registered on the PPSR and the potentially significant consequences of failing to do so.
Secured parties should be very careful in completing PPSA registrations and lodge as soon as possible. If in doubt about whether a security interest needs to be registered on the PPSR, the prudent course is to register anyway because the consequences if you are wrong, can be dire.Simone Farrugia
Restructuring and insolvency
Colin Biggers & Paisley
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