The growing jurisprudence in Australia in relation to the Personal Property Securities Act 2009 (Cth) (PPSA) has demonstrated, once again, how a defective registration on the Personal Property Securities Register (PPSR) can result in a security interest being unenforceable upon the grantor of that security interest becoming insolvent.

But is there any leniency? Does every error on the PPSR necessarily mean doom for secured parties (e.g. lessors, retention of title suppliers, consignors, financiers and other secured creditors)?

The recent decision of Justice Brereton of the Supreme Court of New South Wales in Re OneSteel Manufacturing Pty Ltd (administrators appointed) [2017] NSWSC 21 (Alleasing Case), emphasises the importance of an effective registration and need for extreme care when preparing and lodging registrations on the PPSR.

Key Points

• If a grantor of a security interest is a company that has an ACN (Corporate Grantor), then the PPSR registration must be against the Corporate Grantor's ACN, not its ABN.

• Failure to include a Corporate Grantor's ACN on a PPSR registration constitutes a 'seriously misleading' defect and the PPSR registration will be ineffective.

• If the secured party fails to have an effective PPSR registration within the statutory timelines and the Corporate Grantor becomes insolvent, the secured party may lose their security interest.

• In respect of a PPS lease (this type of security interest was examined in the Alleasing Case), a lessor may lose their leased goods to the administrator or liquidator appointed to the insolvent lessee if they have a defective PPSR registration. This will be the case notwithstanding the lessor may own the leased goods (also see our article on the 'Forge Case').

The Facts

• Alleasing Pty Limited (Allleasing) (lessor) was regularly engaged in the business of leasing equipment.

• On 16 October 2014 Alleasing (as lessor) entered into a master lease agreement with OneSteel Manufacturing Pty Limited (OneSteel Manufacturing) (as lessee) (Rental Agreement).

• The Rental Agreement created a PPS lease and the PPSA applied to this security interest.

• Upon entering the Rental Agreement, Alleasing lodged a registration on the PPSR against OneSteel Manufacturing (as grantor). However, in the PPSR registration, OneSteel Manufacturing was described by its ABN instead of its ACN.

• On 7 April 2016, administrators were appointed to OneSteel Manufacturing (Administrators). At this time, OneSteel Manufacturing was still in possession of the leased equipment pursuant to the Rental Agreement.

• The Administrators claimed that Alleasing failed to perfect its security interest by registration on the PPSR because it had registered against OneSteel Manufacturing's ABN instead of its ACN.

• The Administrators claimed a superior right to the leased equipment (even though Alleasing was the owner of the leased equipment!).

• Alleasing attempted to fix their mistake on the PPSR by lodging a new registration on the PPSR against the ACN of OneSteel Manufacturing and amending the earlier PPSR registration to include the ACN of OneSteel Manufacturing (Later Registrations).

The Issues

At trial, the key issues considered by the court were:

• whether Alleasing's original PPSR registration was defective because it was a registration against OneSteel Manufacturing's ABN instead of its ACN;

• whether such a defect made the PPSR registration ineffective; and

• whether the court would grant Alleasing an extension of time in order for it to rely on its Later Registrations instead.

The Court's findings

In summary, the court found that:

• in respect of a Corporate Grantor, a PPSR registration must include the ACN (not ABN) of the Corporate Grantor;

• the defect in Alleasing's original PPSR registration made the registration ineffective because it did not enable a person searching the PPSR by ACN to find Alleasing's registration;

• notwithstanding that the Administrators were able to find Alleasing's original PPSR registration by searching across multiple identifiers (i.e. by ACN, ABN and name), the fact that Alleasing's registration was not registered in accordance with the PPSA meant that the defect was seriously misleading and ineffective;

• as a result of Alleasing's ineffective registration, the security interest of Alleasing over its leased equipment vested in OneSteel Manufacturing and Alleasing could not enforce its security interest.

• the Later Registrations (although correct in substance) were registered outside of the statutory timelines and the court rejected Alleasing's request for an extension of time. On this basis, the Later Registrations were defective as well.

A $23 million mistake
It is understood that Alleasing had paid approximately $23 million in respect of the leased equipment which has now been lost because of its defective PPSR registration.

The Alleasing Case is a timely reminder about the devastating consequences for a secured party if a simple error is made when lodging a PPSR registration.

The decision is yet another warning for secured parties about:

• the complexity of the legislation regulating personal property securities in Australia; and

• the dire consequences of not getting PPSR registrations right.

How can we help?
If you are a secured party and you are unsure of your rights and obligations under the PPSA please contact Chris Wilkinson, Charles Cheah or Suzanne Howari.

The material in this article was correct at the time of publication and has been prepared for information purposes only. It should not be taken to be specific advice or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained in this article.

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