The Personal Property Securities Register (PPSR) is a national online register. It protects parties purchasing personal property from either an individual or an entity. How can a lender perfect its registration so as to ensure protection?
OneSteel Manufacturing Pty Limited (administrators appointed) [2017] NSWSC 21 highlights the importance of correctly registering a security interest on the Personal Property Securities Register.
What is the Personal Property Securities Register and how does it work?
The Personal Property Securities Register (PPSR) is a national online register. It protects parties purchasing personal property from either an individual or an entity. This property may include items such as cars, boats, jewellery, equipment and so on. It does not, however, cover land or real estate.
The PPSR can protect finance lenders or people entering into equipment leasing agreements. The lender may search the register to ensure that the Borrower/Lessee doesn’t already have security interests placed over their property.
By conducting a search of the Personal Property Securities Register, the searcher can determine if the property has a security interest registered over it. It shows whether another individual or entity has a secured claim against the property. If so they may be able to repossess it in the future. As long as their security interest remains registered and valid.
Registering a Security Interest
In the case of a finance or leasing transaction it is usual for the Lender or Lessor to create a registration on the Personal Property Securities Register over the customer. The registration of a security interest can help protect the person or entity making the registration against the grantor’s insolvency. Also, it may preserve their priority position against any other lenders trying to claim against the same grantor.
In registering a security interest over property through the PPSR, there are certain elements that will affect the validity and priority of the registration. The term perfection relates to registering your interest in such a way that it has best priority and effectiveness. It should ensure enforceability against the grantor if the need arises.
OneSteel – Facts of the Case
Importance of correctly registering a security interest
The case of OneSteel Manufacturing Pty Limited (OneSteel) discusses the idea of perfection. It highlights the importance of correctly registering a security interest on the Personal Property Securities Register.
OneSteel Manufacturing leased specialised equipment and spare parts from Alleasing Pty Limited under a leasing agreement signed by both parties. In the process of the leasing transaction, Alleasing sought to protect their interests in the goods, by registering the financing statements on the PPS Register.
Importance of ACN vs ABN
However, they did so over OneSteel’s Australian Business Number (ABN), rather than the companies’ Australian Company Number (ACN). This is not in accordance with clause 1.3 of the Personal Property Securities Regulations 2010 – Schedule 1. This clause requires that where the grantor of the security interest has an ACN then that ACN must be used for any registration over that grantor. By contrast, a registration over an ABN only will not be perfected.
The consequences of the registrations made against OneSteel’s ABN rather than its ACN were not realised until April 2016, when OneSteel appointed company administrators. They notified Allleasing that their original registrations over OneSteel were invalid. The reason being that the registrations remained unperfected prior to the appointment of the company administrators.
Alleasing then tried to fix it by registering a second round of registrations over OneSteel’s ACN. And by changing their initial registrations to mention OneSteel’s ACN. But it was too late as the company had already entered administration.
During the hearing OneSteel argued that their original registrations were valid. They tried to justify this on the basis that the 9 digit ACN formed part of the 11 digit ABN. Therefore the ACN was included on the registrations.
Alleasing argued that the registrations were not invalid as they were not in breach of either s 164 or s 165 of the Personal Property Securities Act 2009 (Cth) (PPSA).
OneSteel – The Judgment
In handing down his judgment Brereton J highlighted that a registration of a security interest is not perfected if made against the ABN of a company, when that company has an ACN.
During his judgment, Brereton J discussed whether s 588FM of the Corporations Act 2001 (Cth), which allows for the Court to grant an extension of time for a registration, could provide any relief. In conclusion, Justice Breton held that any relief under s 588FM was only available if the registration was perfected before the company administrators were appointed. And this did not occur in the case of OneSteel Manufacturing Pty Ltd.
Justice Brereton also discussed the fact that registering an interest over a company’s ABN rather than its ACN could be seriously misleading to anyone searching the register using the company ACN. Their search results would not show the registration.
Consequences of OneSteel Decision
This decision is a timely reminder of the importance of correctly registering security interests to be enforceable. It reinforces the principle that if a registration remains unperfected and not fixed before a critical time, i.e. a company going into administration, it will not be valid. And the interest will confer to the grantor.
One cannot rely on the relief provided by s588FM of the Corporations Act to stop the interest vesting in the grantor if the registration remains unperfected before the critical time. Only perfected registrations can rely on s588FM.
Secured parties need to be mindful of the strict Personal Property Securities Act (PPSA) requirements. If there is an error in a registration of the security interest, one must remedy the defect immediately. Waiting until the critical time will see the interest vest in the grantor, as was the case in OnesSteel. As a result the secured party will potentially lose their rights to any relief.
An error or omission in a registration may seem trivial. However, OneSteel is a perfect example of why carefully observing the PPSA registration requirements is necessary. Fix any defects in a timely manner.
Related articles:
Registering Security Interests on the PPSR: Precision is Key
This publication is for your general information and interest only. It is therefore not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek advice tailored to your specific circumstances.