Much is made about registering against the serial numbers of serial numbered property under the Personal Property Securities Act 2009 (Cth). However, the actual effect of failing to register by serial number or registering against an incorrect serial number is often overlooked. Serial number is defined to mean a serial number by which the regulationsrequire, or permit, the collateral to be described in a registration.
Serial numbered property includes aircraft, motor vehicles, watercraft, certain intangible property (namely, designs, patents, plant breeder’s rights and trademarks) and licenses over that intangible property. Registrations relating to aircraft generally are required to contain the serial number. However, in every other case serial numbers are only required when the serial numbered property is consumer property. Consumer property is defined to mean personal property held by an individual unless it is held in the course or furtherance of carrying on an enterprise to which an ABN has been allocated. Therefore, if the grantor of a security interest in serial numbered property (other than aircraft) is not an individual, but a company or other entity, then serial numbers are not required, though they are permitted.
If serial numbers are permitted, but not required, what are the consequences for failing to register by serial number or registering an incorrect serial number? The only consequence is found in section 44: a buyer or lessee of the collateral will take the collateral free of the security interest if a search by serial number does not disclose the registration. This means that if the registration does not include the serial number or the serial number is incorrect, a buyer of the property from the grantor will take it free of the security interest with the result that the secured party will lose its interest. Similarly, a lessee of the property from the grantor will take its rights under the lease free from the security interest with the result that the secured party is not able to interfere with the lessee’s rights while the lease remains in existence.
Failure to register serial number where serial number permitted (not required)
Failing to register by serial number (where the serial number is permissible not required) does not mean the security interest is unperfected. If the grantor becomes insolvent, the security interest will not vest if the secured party did not register by serial number. As long as the secured party had registered a financing statement otherwise describing the collateral in accordance with the PPSA and the regulations, the security interest will remain perfected and will not vest in the insolvent grantor. For example, a secured party who registers a financing statement describing the serial numbered property as “all present and after-acquired property” will still have a perfected security interest in the serial numbered good despite not registering against the serial number.
Furthermore, a secured party who does not register by serial number (where serial number registration is permitted rather than required) will not lose priority over the collateral to a secured party who does register by serial number simply for the fact that the first secured party did not register by serial number.
Failure to register serial number where serial number required
In contrast to the above, if the serial numbered property is consumer goods or aircraft (generally), serial numbers are required to be included in the registration. In these cases, failing to register by serial number or registering an incorrect serial number, could have disastrous results. Section 165(a) provides that a registration will be defective and, therefore, ineffective, if the collateral is required by the regulations to be described by serial number and no search on the serial number is capable of disclosing the registration. If the serial number is missing from the registration, the registration will be ineffective because it would not be discovered by a search on the serial number. If the registration does include the serial number, but the serial number is incorrect (even just by one digit), the registration will still be ineffective because the PPSR is an exact-match system and a search using the correct serial number will not disclose the registration with an incorrect serial number. So even if the registration is searchable by the grantor’s details, section 165(a) renders it ineffective if it doesn’t contain the correct serial number.