Under Australia’s securities laws, it is important to register your security interests on the Personal Property Securities Register (PPSR). Unfortunately, the registration process is not straightforward. A recent case demonstrates how using an ABN instead of an ACN can be a fatal defect in a registration with the result that the secured party can be left with no security at all.
Who needs to know?
Anyone who needs to register security interests on the PPSR. This includes businesses that sell goods on retention of title terms or lease or hire goods.
Recent Case
The recent case of In the matter of OneSteel Manufacturing Pty Limited (administrators appointed) [2017] NSWSC 21 arose from the insolvency of the OneSteel steelworks at Whyalla in South Australia and its nearby iron ore mine.
During 2015, the mine leased some significant items of equipment from Allleasing (an asset financing company). The acquisition and installation costs etc for the equipment totalled about $23 million. The equipment was leased to OneSteel for a term of 6 years with quarterly rental payments of about $1 million. This type of leasing arrangement is treated as a security interest for the purposes of the PPSR. Alleasing sought to protect its security interest by registering against OneSteel on the PPSR. So far so good.
Unfortunately, like so many other aspects of the PPS rules, the PPS rules relating to registrations are complicated and strict. The details to be used in a registration depend on many factors, including the nature of the property, the type of security interest and the type of party granting the security interest. For instance, different details are required depending on whether the party is a company, a partnership, an individual or a trust.
In this case, the rules required Alleasing to include OneSteel’s Australian Company Number (ACN) in the registration. However, Alleasing used OneSteel’s Australian Business Number (ABN). Because of the way the PPSR database is set-up and the very specific rules for registering on and searching against the PPSR, a search of the PPSR “by reference only to” the required details (i.e. OneSteel’s ACN) would not have revealed Alleasing’s registration based on OneSteel’s ABN. This meant that Allleasing’s registration against OneSteel was defective for the purposes of section 165(b) of the Personal Properties Securities Act 2009 and therefore “unperfected”. As a consequence, when OneSteel went into administration in April 2016, Alleasing’s security interest (in this case its ownership of the leased equipment) “vested” in OneSteel pursuant to section 267 of the Personal Property Securities Act. This vesting meant that Alleasing lost ownership of the equipment. It became no more than an unsecured creditor for a damages claim against OneSteel (an insolvent company) for an amount equal to the greater of the future rental payments and the market value of the equipment. This is a very harsh outcome and in many respects results in a windfall gain for OneSteel (or at least its secured creditors).
Practical Points to Take Away
- The PPSR registration process is a mine field. Businesses should obtain legal advice and ensure their staff are appropriately trained. It is easy to fall into a routine when making registrations but it is critical to consider the registration requirements each and every time a registration is made.
- In this case, using the ABN was wrong. However, if OneSteel was acting as the trustee of a trust and the ABN used by Alleasing when making the registration was the ABN of that trust (as opposed to OneSteel’s own ABN), then (other things being in order) the registration would have been effective. It is critical that business know who their customer is and in what capacity the customer is contracting. Having good account opening procedures can greatly assist.
- Businesses should consider doing an internal audit on their existing PPSR registrations to ensure they have been done correctly. In some instances it will be too late to remedy any problems, but in many instances making a new registration may solve the problem.