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. 

The post Personal Property Securities Register: Perfecting Registration appeared first on Elliott May.

The recent Supreme Court of New South Wales decision of In the matter of OneSteel Manufacturing Pty Ltd (administrators appointed)[2017] NSWSC 21 reaffirms the importance of ensuring the accuracy of grantor details when registering financial statements on the Personal Property Securities Register (PPSR).

Key Findings

• The recent Supreme Court of New South Wales decision of In the matter of OneSteel Manufacturing Pty Ltd (administrators appointed)[2017] NSWSC 21 reaffirms the importance of ensuring the accuracy of grantor details when registering financial statements on the Personal Property Securities Register (PPSR);
• Security interests registered against the Australian Business Number (ABN) of a corporate grantor where the corporate grantor has an Australian Company Number (ACN) will be rendered ineffective and ‘seriously misleading’.

Facts Regarding Registration of Security Interests

Between May and July 2015, Alleasing Pty Ltd (Alleasing) leased a crusher and spare parts to OneSteel Manufacturing Pty Limited (OneSteel).

As the crusher and spare parts were not consumer property, s 153 of the Personal Property Securities Act 2009 (Cth) (PPSA) required that the financing statements include “the grantor’s details as prescribed in the regulations”. Clause 1.3 of Schedule 1 of the Personal Property Securities Regulations 2010 (Cth) (the Regulations) requires that where the grantor is a body corporate that has an ACN, the prescribed details are the ACN of the grantor.

Alleasing registered its security interest on the PPSR. But it incorrectly included OneSteel’s ABN in the entry, rather than its ACN.

OneSteel went into administration on 7 April 2016. The administrators advised Alleasing that they considered the registrations were defective and ineffective and, consequently, Alleasing’s interest in the crusher and the parts vested in OneSteel pursuant to s. 267 of the PPSA.

In June 2016, Alleasing lodged new financing statements referring to OneSteel’s ACN, and also amended the original registrations to refer to the ACN.

Issues

The Court considered whether:

1. the original registrations were rendered defective and ineffective as a result of being registered against the grantor’s ABN, and not it’s ACN;

2. an order could be made under s588FM of the Corporations Act 2001 (Cth) (Corporations Act) extending the time for registration.

Decision

• Brereton J declared that Alleasing’s registrations were defective. The Court rejected Alleasing’s submission that there was no defect in its original registrations, given that OneSteel’s 11 digit ABN included its 9 digit ACN. The Court found this fact irrelevant, as an ABN and ACN are two different identifiers issued by different agencies.
• The registrations were rendered ineffective. Sections 164(1)(b) and 165(b) of the PPSA provide that a registration will be ineffective if a search of the PPSR by reference to the details required to be included under s 153 of the PPSA was not capable of disclosing the registration. Clause 1.3 of Schedule 1 of the Regulations requires a financing statement to refer to a grantor’s ACN if it has an ACN. The registrations were ‘seriously misleading’ for the purposes of s 164(1)(a) of the PPSA as they did not enable a person searching the PPSR by reference only to OneSteel’s ACN to find Alleasing’s registrations.
• Under s 267 of the PPSA, security interests that are unregistered at the commencement of formal insolvency will ‘vest’ in the grantor. The interests of Alleasing had vested in OneSteel, effectively giving ownership of the leased asset to the insolvent estate.
• Alleasing could not perfect its security interest by obtaining an order under s 588FM of the Corporations Act. Section 588FM of the Corporations Act only provided relief to a company from the consequences of belated registrations of perfected security interests granted by companies, as opposed to unperfected interests. Here, as the correct registrations were unperfected at the critical time (being the time Onesteel went into administration), relief under s 588FM of the Corporations Act was unavailable.

Click here for more details on the Personal Property Securities Register.

Related articles

Personal Property Securities Register: Perfecting Registration

This publication is provided for your general information and interest only. It is not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

The post Registering Security Interests on the PPSR: Precision is Key appeared first on Elliott May.