Background

Assta Labels Pty Ltd, Dashing Print Pty Ltd and PMP Print Pty Ltd (together, the Grantors), granted purchase money security interests (PMSIs) to the plaintiff, HP Financial Services (Australia) Pty Ltd (HPFS). Staff at HPFS subsequently registered security interests on the PPSR against the Grantors’ ABNs rather than the ACNs. Unfortunately for HPFS this was in contravention of s 153 of the PPSA (and the relevant regulations), which specifically requires security interests lodged in relation to a company to be registered against a company’s ACN. The registrations were therefore defective under the PPSA.

When HPFS discovered its registration error, the 15 business day period for registering PMSIs under s 62(3)(b) of the PPSA had lapsed. HPFS sought orders to extend the registration period.

Does the PPSA allow for extension of PPSR registrations?  

If a court is satisfied that it is ‘just and equitable to do so’, it may make an order to extend the number of business days required for registration of a PMSI. In deciding the matter, a court must consider the following as set out in s 293(3) of the PPSA:

(a) whether the need to extend the period arises as a result of an accident, inadvertence or some other sufficient cause

The Court found that the incorrect registrations occurred against the Grantor’s ABNs and not the ACNs due to an error within HPFS’s organisation. Relevant staff members did not understand that a registration was deemed invalid if registered against the ABN and not the company’s ACN. The Court accepted that the need to extend the period arose due to inadvertence. At paragraph 12, Justice Kunc stated:

This is certainly not a case where HPFS did not appreciate the importance of having to register its interest or in some other way deliberately disregarded what had to be done to take advantage of the scheme offered by the PPSA. After the error was discovered, compliant registrations (using the ACNs) were made on 4 October 2016 in relation to each Grantor.

(b)  whether extending the period would prejudice the position of any other secured parties or other creditors;

Guidance on this question was provided by the earlier decision of the NSW Supreme Court In the matter of Accolade Wines Australia Limited and other companies [2016] NSWSC 1023. The issue of prejudice under s 293(3) of the PPSA hinges on:

not to the impact on other secured parties or creditors of the delay in registration, but to the impact of making an order extending the period; to evaluate prejudice for that purpose, one compares the position of creditors if an extension is granted, with their position if no extension is granted, and usually there will be a difference because priorities will be disturbed

The Court concluded that extending the period in this case would not prejudice the position of any other secured parties or creditors.

(c)  whether any person has acted, or not acted, in reliance on the period having ended.

Prejudice will be of significance chiefly where it is coupled with reliance (i.e. the type of “reliance” contemplated here is where a third party has taken a security interest over property that includes the PMSI in the belief that there was no perfected PMSI that would trump its interest).

The Court found that where a search of the register would have shown HPFS’s interest in the case of each Grantor, no act or failure to act had occurred in reliance of the period having ended.

Message

Despite HPFS being successful in extending the period for registration of its security interests, the error was easy to avoid and likely caused significant delays and costs. Extra care should be taken to register security interests against grantors in accordance with the PPSA and its regulations at the first instance.

Related articles:

Personal Property Securities Register: Perfecting Registration

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 Lenders Warned: Make Sure PPSR Registrations are Correct appeared first on Elliott May.

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.