A defect in the registration of a PPSR security interest can potentially cost millions

WHO SHOULD READ THIS

• Any party with a security interest registrable on the PPSR, including financiers and other lenders, and lessors in the business of leasing goods.

THINGS YOU NEED TO KNOW

• Administrative errors in PPSR registrations can render a registration defective if not registered against the correct grantor identifier.

WHAT YOU NEED TO DO

• Review current processes and registrations on the PPSR to ensure they comply with the legislative requirements.
• Please contact us if you would like us to assist with either a review of your existing registrations or completion of new registrations.

The case of Re OneSteel Manufacturing Pty Ltd (administrators appointed) reinforces the importance of registering a security interest on the Personal Property Securities Register (PPSR) against the correct details for the grantor as required by the legislation. Failure to do so may mean that the security interest will be lost.

Background

Alleasing Pty Ltd (Alleasing) leased a crushing and screening plant worth $23,329,764 to OneSteel for $1 million per quarter. Alleasing also leased spare parts for the machinery for a quarterly rent of $5,924. The Alleasing employee responsible for making the registrations seemingly did not understand the specific requirements for registration on the PPSR, and mistakenly registered Alleasing’s security interests by reference to OneSteel’s ABN and not its ACN. OneSteel appointed administrators, who notified Alleasing that their registrations were defective and that therefore, Alleasing’s security interests were lost in the sense that they vested in OneSteel immediately prior to the commencement of the voluntary administration.

Legislative requirements

Section 153 of the Personal Property Securities Act 2009 (Cth) (PPSA) and Schedule 1 of the Personal Property Securities Regulations 2010 (Cth) (Regulations) set out the specific requirements for registration.

In summary:

• where the grantor is an individual – the security interest must be registered against the individual’s name and date of birth
• where the grantor is a body corporate – the security interest must be registered against the company’s ACN (unless it is a responsible entity of a registered scheme within an Australian Registered Scheme Number)
• where the grantor is a trust – the security interest must be registered against the ABN of the trust, and
• where the grantor is a partnership – the security interest must be registered against the ABN of the partnership.

Registrations can be against more than one identifier, but at a minimum must be against those shown above to be perfected.

The decision

The court considered the provisions relating to registration for a corporate grantor. Pursuant to section 153 of the PPSA and Schedule 1 clause 1.3 of the Regulations, the registration should have been made against OneSteel’s ACN. Section 164 of the PPSA provides that a registration will be defective if either there is either a seriously misleading defect or a defect mentioned in section 165.

Defects in registration

Under section 165(b), there will be a defect in the registration if no search of the register by reference to that time, and by reference only to the grantor’s details (required to be included in the registered financing statement under section 153) is capable of disclosing the registration. A search only by reference to the grantor’s details required under section 153 (being the ACN) would not have shown the registration against the ABN (even where the ACN was contained within the ABN), thereby rendering the registration defective. Alleasing’s security interest was therefore unperfected and so vested in OneSteel upon appointment of the administrator. It was irrelevant that a combined search through a business-to-government search platform which included the ABN in the search criteria could also reveal registrations against the ABN.

Seriously misleading

Given that the defect was of a kind identified in section 165, it was not strictly necessary for the court to consider whether the defect was misleading. However, Brereton J also went on to consider this in the event that the conclusions reached as to the application of section 165(b) were incorrect. Pursuant to the legislation, the authorised mode of search having regard to the requirements for registration was a search of the company’s ACN. Given that this would not show a registration made against the ABN, the registration was not discoverable and therefore the defect was seriously misleading. It was crucial that the registration had the capacity or potential to mislead, and it was not necessary to show that anyone had actually been misled.

Conclusion

If a secured party is to enjoy the benefits of registration then the onus is on the secured party to ensure that they register their security interest correctly using the grantor details identified in the Regulations. A failure to do so will leave the secured party vulnerable in the event that the grantor suffers an insolvency event. The take away message for those who have a security interests over personal property is to register, register within time and register correctly.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.