By Ariel Borland, Partner, Jennifer O’Farrell, Associate

In the decision of In the matter of OneSteel Manufacturing Pty Limited (administrators appointed) [2017] NSWSC 21 (OneSteel), the Court held that a registration which erroneously identifies a grantor by its ABN instead of its ACN is a seriously misleading defect within the meaning of sections 164 and 165 of the Personal Property Securities Act 2009 (Cth) (PPSA) that will render the registration of a security interest on the Personal Property Securities Register (PPSR) nugatory.

This is an important factor for insolvency practitioners to look out for when assessing the validity of PPSR security interests.

FACTS

The plaintiff, Alleasing Pty Limited (Alleasing) was in the business of asset financing and leasing. Alleasing provided funding to the defendant, OneSteel Manufacturing Pty Limited (OneSteel), for the leasing of a Striker crushing and screening plant, and the leasing of parts, from a third party.

The arrangement was registered as a “PPS Lease” (also a “purchase money security interest” or “PMSI”) on the PPSR (Original Registration).  However, under the PPSA a grantor must be identified by the “prescribed details” per the Personal Property Securities Regulations 2010 (Cth) (Regulations).  The Regulations provide that where a grantor of a security interest is a body corporate with an ACN, those details are the ACN of the grantor. Alleasing’s registration in this case, however, only referenced the ABN.

Administrators were appointed to OneSteel on 7 April 2016.  Alleasing subsequently amended the Original Registration using the correct ACN details on 17 June 2016 (Amended Registration).

The Court considered whether the defect of registering by ABN instead of ACN would be a “seriously misleading” defect within the meaning of section 164 of the PPSA, on the basis that, under section 165 of the PPSA, it was not possible to search the PPSR by reference to the grantor’s “prescribed details”.  If so, this would render Alleasing’s Original Registration invalid such that it would vest immediately prior to the appointment of administrators under section 267 of the PPSA.  Alleasing sought:

• a declaration that its security interest was validly perfected; or

• a declaration that section 267 of the PPSA was invalid as it would result in an acquisition of property other than on just terms, which is prohibited by section 252B of the PPSA; and

• alternatively, pursuant to section 588FM of the Corporations Act 2001 (Cth) (Corporations Act) an order fixing the registration time at the time of the Amended Registration.

DECISION

Will using an ABN suffice where an ACN is required by the PPSA and Regulations?

No. The 11-digit ABN was the wrong “data” required by section 153 of the PPSA to be included in the registration. The Court deemed it irrelevant that the ACN digits happened to be included within the ABN sequence.

An argument that section 1344 of the Corporations Act, which permits the use of an ABN instead of an ACN when an ACN is required “under a law of the Commonwealth administered by ASIC”, was also unhelpful to Alleasing as the PPSA is not a law administered by ASIC.

But can a seemingly minor ACN omission really render the entire registration ineffective?

Yes. This is because the Court found that by searching for the grantor’s details, a party wanting to ascertain security interests over the grantor would not be able to do so if the grantor had been erroneously identified by its ABN and not its ACN.  This is because the PPSR website was technically incapable of returning any results under an ACN search where only an ABN was used for the registration. This defect was still regarded as seriously misleading despite the financing statement referring unequivocally to OneSteel and the relevant collateral.

Even if the registration was ineffective, wouldn’t vesting the property in OneSteel be void as an acquisition “not on just terms”? 

No.  Section 252B of the PPSA prevents the operation of any PPSA provision that would result in the acquisition of property other than on just terms (within the meaning of section 51(xxxi) of the Constitution).  However, the Court found that the section 267 vesting provision does not concern “acquisitions” and so section 252B of the PPSA was not enlivened.

Other attempts by Alleasing to extend the time available for registration under section 588FL of the Corporations Act also failed. Despite the original mistake being an accident and the mistake not prejudicing creditors or shareholders, because section 267 was already engaged, the property had vested and the Amended Registration and section 588FL could not remedy the situation.  Hence, Alleasing’s security interests were not perfected and had vested in OneSteel, making them available for distribution. 

KEY LESSONS

Evidently, an ostensibly minor omission can have far-reaching consequences over an otherwise sound registration.  Practitioners are often thorough in their search for security interests and will search a company’s ACN, ABN as well as its business name.  However, notwithstanding that conducting these three searches will produce a result, it is important to recognise that failure to accurately register a grantor’s details will result in a seriously misleading registration which will vest on the practitioner’s appointment.

Finally, an important distinction to note: in 2013, Brereton J held in Future Revelation Ltd v Medica Radiology & Nuclear Medicine Pty Ltd [2013] NSWSC 1741 that incorrectly registering a secured party by ABN instead of an ACN was not seriously misleading.  From Future Revelation and OneSteel, it seems that what is important is the ability of a third party to search a grantor’s details to identify what, of the grantor’s property, is encumbered.