In OneSteel Manufacturing, the Supreme Court of New South Wales recently clarified the requirements for security interests registered on the Personal Property Securities Register (‘PPSR’). The result stands to impact all consumers that seek to register security interests over personal property.
What is the PPSR?
The PPSR allows lenders and businesses to register their security interests over personal property so that in the event of debtor default or liquidation secured creditors can determine priority over the order in which they get paid. A PPSR search allows potential secured parties to search for and register security interests over personal property including art, cars, boats, caravans, crops, livestock, plants and machinery and shares. It also includes non-material items like accounts, intellectual property, investment instruments and licenses.
What was the case about?
The case was notable for the court setting a high standard for PPSR registration requirements in spite of the fact it cost independent private equity lessor Alleasing Pty Ltd (‘Alleasing’) $24 million in assets and charges under an agreement to lease a crushing and screening plant.
The law requires that where the grantor of a lease is a body corporate, the ACN must be included on the financing statement. However, an employee of Alleasing instead used the company’s ABN number to register a security interest on the PPSR.
The case was about whether this decision meant that the registration should be deemed “ineffective” and “seriously misleading” for failing to follow the law.
An ABN is shown in the Australian Business Register, while the ACN is given to a corporation by the Australian Securities and Investment Commission (‘ASIC’) upon its registration.
The PPSR legislation states that a registration will be ineffective if a defect is seriously misleading, or where no search of the register with the other details would show the registration in question. Where the law requires that an ACN be used, if the financing statement fails to include it, a search would not show the registration at all.
The Court found that if this is the case, the registration is ineffective.
Alleasing argued their registration was not seriously misleading
In submitting that their registration should be valid, Alleasing argued that:
- they had since realised the mistake and used a new company to correct it;
- there was no defect in the registration;
- even if there was a defect it was not one severe enough to make the registration ineffective;
- the Australian Constitution demands that property be acquired only on just terms and that depriving them of their assets and charges would breach this law; and
- Alternatively, if their first attempted registration was ineffective, the court should extend the time for registration to when the second registration occurred.
The court found that the registration was ineffective
The court found that using the ABN instead of the ACN was severe enough of a mistake to render the registration “ineffective” and “seriously misleading.”
Alleasing claimed the defect was not seriously misleading because they, like 80% of the industry, use a Business to Government (‘B2G’) interface that can discover a registration using either the ACN or ABN. However, the court said this did not mean their mistake was not misleading.
The court decided it did not matter whether someone had actually been misled, but rather the question was if someone using the other available software would not have discovered the registration if they conducted a search. Because this was the case, the court found that Alleasing’s first attempt at registration was seriously misleading.
The court also rejected Alleasing’s argument for an extension of time for registration as even if it had the authority to do so, it would not alter the fact that the security was wrongly registered initially.
The court was careful to note, however, that different rules apply to trusts which do in fact have to be registered using an ABN number.
Significance of the decision
Here the Court chose not to disadvantage any operations that rely on other software.
The decision is important as it ensures that when a PPSR search is conducted, consumers can be confident that if a security interest does not appear the property has no money owing over it.
It also means that details on all PPSR registrations must be totally accurate to prevent any loss of assets. Consumers and companies alike must ensure they are confident that their representation will perform their registrations with the utmost accuracy, as the court clearly will not tolerate any less.
If you have PPSR registrations or loan assets subject to security, you should be sure that your registrations are correct and enforceable. Ramsden Lawyers are experts in all aspects of PPSR law and regularly assist with registrations, removal of registrations and enforcement of obligations.