In a recent case an asset financing and leasing company failed to validly register their PPSR interest - a mistake resulting in the company losing their $23 million security.
When it comes to the Personal Property Securities Register (PPSR), we can't help but ask: "It's been six years – what have we learnt?"
To address this, Madgwicks is publishing an informative series of articles over the next few weeks for those of you currently using the PPSR and those who may need to register the occasional dealing. The aim of these 6 articles is to help you better understand how the Personal Property Securities Act (PPSA) applies to you and to avoid the common pitfalls in registration.
It is vital that Personal Property Securities Register (PPSR) registrations are undertaken correctly as even very minor issues such as incorrectly using an ABN or ACN are reason enough to render the entire registration ineffective.
What you need to know
- If the party who is granting the security interest in the personal property (Grantor) enters the agreement as a trustee of a trust which holds an Australian Business Number (ABN), the registration should be made be under the ABN of the trust; and
- If the Grantor has an Australian Company Number (ACN) and entered the agreement in its own capacity (not as a trustee of a trust), the registration should be made be under the ACN of the company.
In the recent case of OneSteel Manufacturing Pty Ltd (administrators appointed)  NSWSC 21 (OneSteel), an asset financing and leasing company failed to validly register their PPSR interest – a mistake resulting in the company losing their $23 million security.
OneSteel rented equipment from Alleasing Pty Limited (Alleasing) under a master lease agreement with Alleasing retaining a security interest. As OneSteel had entered into the agreement in its own capacity, the Personal Property Securities Act 2009 (Cth) (PPSA) required Alleasing to register its security interest against the ACN of OneSteel.
However, when Alleasing registered the security interests on the PPSR in October 2014 and July 2015 respectively, it registered the interests under OneSteel's ABN and not ACN.
OneSteel went into administration on 7 April 2016, and the administrators notified Alleasing that their security interests had vested with OneSteel upon their appointment. In other words, the property the subject of the incorrect registrations was lost to the company in administration. The administrators argued that where a security interest remains unperfected (meaning registration hasn't properly occurred) the PPSA provides that the security interest vests with the Grantor upon the appointment of administrators.
Alleasing amended the original registrations to include their ACN on 7 June 2016 (after the administrators were appointed).
The Court's findings
In determining the validity of Alleasing's security interests, the Court was required to consider the following issues:
- Will using an ABN be sufficient when the PPSA and Regulations require an ACN?
The Court found that the omission of the ACN amounted to a defect in registration, as a search of the PPSR with the ACN alone would not reveal the registrations. This was irrespective of Alleasing's argument that the final 9 digits of Alleasing's 11 digit ACN corresponded to their ABN.
Further, Alleasing was unable to rely on section 1344 of the Corporations Act 2001 (Cth) (Corporations Act) which permits the use of an ABN when an ACN is required, as this section was only applicable "under a law of the Commonwealth administered by ASIC" of which the PPSA is not.
- Does section 588FM of the Corporations Act provide a mechanism to allow an extension of time to register a security interest?
Alleasing argued that, if its original registrations were deemed ineffective, time should be extended under section 588FM of the Corporations Act. Section 588FM provides a mechanism to allow an extension of time to register a security interest where the Court is satisfied that:
- the failure to register was accidental or inadvertent; or
- would not be prejudicial to creditors/shareholders; and
- it is just and equitable to do so.
The Court rejected this argument finding that relief under this section was restricted to occasions of belated registration and was not available to resurrect a security interest that had already vested in OneSteel (as Grantor) when it went into administration.
The OneSteel decision is a cautionary tale on the importance of getting registrations right the first time, as even the most seemingly minor omission can render the entire registration ineffective. In this case, Alleasing lost their security worth $23 million for this administrative error.
It is important to ensure your registrations include all required information and are PPSA compliant because, as Alleasing discovered, the consequences of getting it wrong are far-reaching and costly!
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. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.