An expensive mistake – pitfalls in PPSA

In the matter of OneSteel Manufacturing Pty Limited (administrators appointed) [2017] NSWSC 21

OneSteel Manufacturing Pty Ltd (OneSteel) rented a crushing and screening plant from Alleasing Pty Ltd (Alleasing), pursuant to a lease agreement it signed in 2014 which had a six-year term.  The entire setup of the hired plant equipment was funded by Alleasing, at OneSteel’s request, for a total cost of $23,329,765.  Two years into the hire agreement, in April 2016, OneSteel appointed administrators.

When Alleasing registered its security interest that arose in accordance with the Personal Property Securities Act 2009 (Cth) (PPSA) in October 2014, it used OneSteel’s Australian Business Number (ABN) rather than its Australian Company Number (ACN).  The staff member who registered the security interests was not aware of the difference between the treatment of an ABN and an ACN, nor of the legislative requirement to use an ACN during the PPSA registration process.

Once the administrators had become aware of the PPSA registration issue, they informed Alleasing that the PPSA registration of the security interest was defective and that Alleasing’s interest in the leased goods would revert to OneSteel, and as such to the administrators.

Following this communication with OneSteel’s administrators, Alleasing sought to re-register their security interest on the PPS Register using OneSteel’s ACN. To protect themselves further, and to regain control of the assets, they applied to the NSW Supreme Court for a declaration that their original security interest was valid and effective.

The Decision

1. Pursuant to the PPSA, it is a requirement that if a body corporate has an ACN, the ACN be provided. The defence argued that the ACN was listed because it is included in the ABN.  The Court held that the ACN needs to be explicitly listed, as the legislation makes no provisions for the ACN to be extrapolated from the ABN, and in fact the relevant reference table makes no mention of ABNs at all for bodies corporate.  The Court also made a note of the fact that the ABN and the ACN are given to a company by different regulators, and as such are not legislatively linked and can be completely different.
2. The defence also claimed that the registration was not defective because the documents relevant to the PPSA registration all consistently referred to the company’s ABN. The Court denied this claim and again held that, because of the legislative requirement for an ACN, the PPSA registration was defective.
3. Pursuant to the PPSA, a registration of a security interest can be deemed defective if it is ‘seriously misleading’. In this case, the Court held that the defect was seriously misleading because “the omission of the ACN meant that searchers using one of the authorised modes of search would not discover the registration”.
4. Further to the claims above, Alleasing claimed that due to the circumstances of the case the provisions of PPSA which allowed OneSteel’s administrators to take control of the assets did not apply. The Court disagreed, and held that the vesting of the property in question to OneSteel, and as a result its administrators, was valid.
5. Alleasing, in the alternative, applied to the Court for an extension of time to register its security interest pursuant to section 588FM. Whilst the Corporations Act 2001 (Cth) allows a Court to make an order to extend the time for registration of a security interest on the PPS Register, this only applies is the failure to register the interest earlier was ‘due to an accident or some other sufficient cause’ or ‘on other grounds [when] it is just and equitable to so’.  The Court did not hold that the circumstances were sufficient grounds for such an extension of time.

Action steps

The key lessons for businesses to take away from this decision are:

1. Check current security interests registered on the PPS Register to ensure that they are registered pursuant to the PPSA.
2. Where necessary and possible, attend to any corrections to your security interests on the PPS Register otherwise, register new security interests.
3. Make sure that all future security interests are registered on the PPS Register pursuant to the strict application of the PPSA.
4. It’s important to note that the latest amendments to the PPS leases came into effect on 20 May 2017. These are discussed in our article titled ‘PPS Leases – Relief comes from the latest Amendment’.  These latest amendments would not have cured Alleasing’s position as the lease was for a period of more than 2 years.  So, check your PPSA registrations again and consider the business tips set out in that article.

At Bryks Lawyers we have extensive experience across the broad spectrum of PPSA. This includes reviewing documents for compliance with PPSA and ensuring that our clients’ interests are protected and enforceable. We also assist our clients in registration of security interests on the PPS Register and provide training to in-house teams on how to register properly. Start the conversation today!