By Bronwyn Montgomery & Amelia Edwards
The addition of two digits in a Personal Property Securities Register (‘PPSR’) registration has seen the NSW Supreme Court apply a strict approach in denying a claim for the return of $23million worth of leased equipment in an insolvency.
Alleasing Pty Ltd leased a crusher and its spare parts to OneSteel Manufacturing Pty Ltd in 2014. The equipment was to be rented for 6 years with quarterly instalments upwards of $1 million.
OneSteel went into voluntary administration on 7 April 2016 and, on 10 June 2016 the administrators declared that due to the use of an ABN rather than ACN as the grantor’s identifier, it considered that registration was defective, and therefore legal and beneficial interest in the equipment had vested in OneSteel. That characterisation has subsequently been confirmed by the NSW Supreme Court.
How was the registration ineffective?
Under the PPSR Act and Regulations (‘PPSR laws’) a registration will be ineffective where it contains a certain kind of defect, or where there is a seriously misleading defect in the registration.
Alleasing registered its interest in the equipment on the PPSR using OneSteels’ ABN. The court held that the registration was defective because PPSR laws require registrations of this kind to include prescribed information, which (in the case of a corporate grantor) is the grantor’s ACN.
The Court was not persuaded by the almost identical sequencing of the 11 digit ABN and 9 digit ACN, as the two identifiers are issued by different agencies and the PPSR laws clearly distinguish between them.
On the alternative issue of whether the defect was seriously misleading, the Court confirmed that it was not necessary to prove any person was actually mislead. It was enough that the defect would have led a searcher using the correct grantor identifier to conclude that there was no registered interest.
Requirements vs functionality
Importantly, the Court’s inquiry referred to the functionality of the PPSR Register portal, which has been set up in accordance with the search parameters authorised under PPSR law. The third party Business-to-Government (B2G) search platform linked to the PPSR portal has broader functionality which allows for combined grantor identifier searches, which may have revealed the registration in the present case. Although both platforms are authorised, because the official PPSR website was not capable of discovering the registration through a search using only the information required by PPSR laws, Alleasing’s registration was ineffective.
Correcting a defect
It is also worth noting that in the week that followed the administrator’s notification of the defective registration, Alleasing amended its registrations and lodged new financing statements. However, as the registration was not perfected before an administrator was appointed, it could not take advantage of relief available under the Corporations Act.
The lesson is that proper care and diligence needs to be applied when registering security interests within the PPSR framework, as requirements differ depending on the kind of entity and the kind of registration. It is also essential that corrections are made as soon as a possible defect is discovered, to increase the likelihood of protecting your assets in a dispute.
For advice on the validity of your PPSR registrations and on how to avoid issues of defective registration, contact our Corporate & Commercial team.