Last week the Supreme Court of New South Wales provided another timely reminder to ensure that all security interests are correctly registered on the Personal Property and Securities Register (PPSR) through the decision In the matter of OneSteel Manufacturing Pty Ltd (administrators appointed)  NSWSC 21.
Alleasing Pty Ltd leased a crushing and screening plant (for approximately $4 million annually in rent) and spare parts for the crusher to OneSteel Manufacturing Pty Limited.
Alleasing registered its security interest on the PPSR but incorrectly included OneSteel’s ABN in the entry instead of OneSteel’s ACN.
Administrators were appointed to OneSteel. Upon appointment, the administrators wrote to Alleasing claiming that the registrations were defective and ineffective and, consequently, asserted that Alleasing’s interest in the crusher and the parts vested in OneSteel under the vesting provisions in the Personal Property and Securities Act 2009 (Cth) (PPSA) (section 267).
A few days later, Alleasing lodged new financing statements but this time with OneSteel’s ACN. Alleasing also amended the first registrations to include OneSteel’s ACN.
Alleasing commenced court proceedings seeking a declaration that the security interests were validly perfected and did not vest or, alternatively, an order under section 588FM of the Corporations Act 2001 (Cth) fixing the time for registration to the date that the second registrations were lodged.
The PPSA issues
Section 153 of the PPSA requires a financing statement to include, relevantly, ‘the grantor’s details as prescribed by the regulations’. The Personal Property Securities Regulations 2010 (Cth) (PPS Regulations) provide that, where the grantor is a body corporate that has an ACN, the prescribed details are the ACN. (Note: where the grantor is a corporate trustee, on behalf of a trust that has been allocated an ABN, the prescribed details are the ABN of the trust not the ACN of the trustee.)
Under section 164, a registration of a security interest is ineffective because of a defect if, and only if it is:
- a ‘seriously misleading defect’; or
- a defect mentioned in section 165.
Section 165(b) mentions various circumstances, including, where no search of the PPSR by reference to the grantor’s details required under section 153 is capable of disclosing the registration.
Therefore, where the grantor’s details required by section 153 are its ACN, if the financing statement does not include the ACN, a search of the PPSR by reference only to the grantor’s ACN would not disclose the registration and accordingly, the registration would be ineffective.
Alleasing argued as follows:
- The first registrations were not defective because the relevant data had been included with the 11 digit ABN because it included the 9 digit ACN.
- Section 165(b) was not engaged because there were a number of combined grantor searches that could be undertaken to reveal the registrations even if only the ACN was entered.
- The defect was not ‘seriously misleading’ for the purposes of section 164(a) because the financing statement referred unequivocally to OneSteel and the crusher and was, in fact, discovered by the administrators on search.
- If the Court did not accept that the original registrations were effective, the Court should exercise its power under section 588FM of the Corporations Act to extend the time for registering a security interest to the date of the second registrations.
Were the registrations defective and ineffective?
Brereton J found as follows:
- The original registrations were defective because they did not include OneSteel’s ACN. The fact that the ABN happened to include the ACN did not mean that the inclusion of the ABN equated to an inclusion of the ACN.
- A search of the PPSR by reference to OneSteel’s ACN would not reveal the registrations because they were registered incorrectly against the ABN and therefore, were ineffective pursuant to sections 164(1)(b) and section 165(b) of the PPSA.
- Further, the defect was such that searches using one of the authorised modes of search would not discover the registration, therefore rendering the defect ‘seriously misleading’ for the purposes of section 164(1)(a) of the PPSA.
- Relief under section 588FM of the Corporations Act for an extension of time is not available because the relevant security interest was unperfected at the ‘critical time’ (that is, when the administrators were appointed).
- Even if relief could be granted, it would not operate to divest an unperfected security interest that had already vested pursuant to section 267 of the PPSA.
The Court dismissed the proceedings with costs and declared that Alleasing’s interest in the crusher and the parts vested with OneSteel and the administrators.
It is crucial that lessors register their security interests on the PPSR within the prescribed statutory timeframe and include all of the prescribed information. The PPSA and PPS Regulations are strict on what information needs to be included in a financing statement in relation to the secured party, the description of collateral, and the type of security interest.
As demonstrated in this case, a defect in the details of the secured party (or in the description of collateral) – even a typographical error – could render the registration ineffective and the consequences could be severe.
If you have a situation where there is a defect in a PPSA registration, immediate action should be taken to correct the registration (where possible) or register a new interest. In some instances, it may be necessary to apply to the court for an extension of time to register the new interest under section 588FM of the Corporations Act before the grantor appoints administrators.