A recent decision handed down by Justice Brereton on 31 January 2017 in the Supreme Court of New South Wales has highlighted the importance of attention to detail when it comes to registering security interests on the Personal Property Securities Register (PPSR), and in accordance with the Act and its Regulations.

In the matter of OneSteel Manufacturing Pty Limited (administrators appointed) [2017] NSWSC 21, the secured creditor, Alleasing Pty Ltd, had registered security interests over goods supplied or to be supplied to OneSteel using OneSteel's Australian Business Number (ABN) as opposed to its Australian Company Number (ACN).

The Court found that the goods that were the subject of the security interests and the registrations, had vested in OneSteel when the business was placed into voluntary administration. This was despite the fact OneSteel's ABN incorporated its nine digit ACN and the fact the administrators, by a variety of searches were aware of Alleasing's PPSR registrations. It was noted that an ABN and an ACN are two distinct identifiers. This result may appear to be harsh but on analysis, it's in keeping with a strict reading of what the Personal Property Securities Act 2009 (PPSA) and its Regulations require to be noted on a financing statement when registering against a corporate grantor.

The facts

OneSteel wanted to lease a Striker crushing and screening plant (Crusher) from Alleasing - which Alleasing would fund.

On 16 October, 2014 Alleasing entered a master lease agreement with OneSteel with terms which would apply to any goods leased under rental schedules entered into. One day later, Alleasing registered a financing statement on the PPSR regarding the Crusher.

In May of the following year, OneSteel entered into a rental schedule for the Crusher, as well as one for its spare parts (Alleasing registering a financing statement on PPSR regarding the spare parts on the same day and completing the registrations using OneSteel's ABN, not its ACN).

On 7 April, 2016, OneSteel went into voluntary administration. Alleasing was informed by the administrators in mid-June that its registrations were 'defective and ineffective' and that the goods that were the subject of security interests had vested in OneSteel. Alleasing lodged new registrations in relation to the same security interests but this time using OneSteel's ACN.

Alleasing also filed an application with the Court seeking declarations that the security interests had been validly registered and had not vested in OneSteel, or alternatively, that the time be extended for registration so that the later registrations were valid.

The result

The Court concluded that Alleasing's goods had vested in Onesteel and that the PPSR registrations were not only defective but also seriously misleading.

Why did the Court rule this way?

There are three key reasons why the Court ruled against Alleasing in this matter:

  1. Section 153 of the PPSA directs a secured party to its Regulations regarding what 'data' is needed in a financing statement when registering on PPSR if the property involved is not consumer property. Regulation 5.5 and Schedule 1 at 1.3 specify that the ACN is required for a corporate grantor who is not a trustee of a trust with an ABN.
  2. The failure to include OneSteel's ACN meant that the registration contained a seriously misleading defect in the data because of the terms of Section 164(1)(a) of the PPSA, rendering it ineffective. Furthermore, it was unnecessary to prove that anyone was actually misled by it. While a searcher can use computer-to computer interface for their searches (for instance, through a business-to-government (B2G) provider), these searches use multiple criteria - not a single permitted search criteria such as the ACN. A direct search of the PPSR database by reference to searchable data - the ACN – would not have revealed the registration, leading a searcher to think that it did exist. His Honour cited the New Zealand case of Polymers International Ltd v Toon [2013] NZHC 1897 with approval on this point.
  3. In addition, Section 165 of the PPSA refers to particular defects in registration. Section 165(b) covers collateral that isn't required to be described by serial number in the PPSR. It provides that there is a defect if a PPSR search referencing only the grantor's details (as per the details required by the Regulations to be included) doesn't disclose the registration.

While Alleasing also sought orders extending time for registration in an attempt to use their second round of registrations to solve the problem with their first lot, their argument was unsuccessful, as was a purported challenge to the vesting provisions of the PPSA on a constitutional basis.

The lesson

It is imperative that staff engaged in the registration process are trained in the data required to complete an effective financing statement. If you are using a third party B2G provider to do your registrations you need to satisfy yourself that the provider is registering using the correct data for the type of grantor you're dealing with, bearing in mind that the provider can only go on accurate information provided to them.

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.