THE CONSEQUENCES OF NOT BEING PPS PERFECTED

The decision of Bereton J In the matter of OneSteel Manufacturing Pty Limited (administrators appointed) [2017] NSWSC 21 handed down on 31 January 2017 is a costly reminder of the importance of ensuring attention to detail when ‘perfecting’ a security interest on the Personal Property Securities Register (PPSR). In this case the security lost its rights to $23 million worth of equipment because the security interest was registered under the ABN instead of the ACN.

The Plaintiff, Alleasing Pty Limited (Alleasing), learnt the hard way that the Personal Property Securities Act (PPSA) requires strict adherence to the PPS regulations when registering a security interest on the PPSR. On 1 May 2015 the OneSteel Manufacturing Pty Limited (OneSteel), commenced renting a Striker crushing and screening plant from Alleasing with quarterly rental of $1m. The total cost involved the design, supply, installation, assembly, construction and commissioning of the crusher as well as spare parts, by Striker Australia Pty Limited (Striker), came to $23 million and was funded by Alleasing.

On 17 October 2014 Alleasing registered a Financing Statement for the crusher and on 7 July 2015, also registered a Financing Statement for the spare parts, not direct on the PPSR portal but on a third-party “business-to-government” platform linked to the PPSR.

Section 153 of the PPSA requires a Financing Statement to include the “grantor’s details as prescribed by the regulations”. As OneSteel, the grantor, was a body corporate with an Australian Company Number (ACN), the prescribed details was the ACN. However, unaware of this requirement, Alleasing registered both Financing Ftatements using OneSteel’s 11 digit Australian Business Number (ABN).

On 7 April 2016 OneSteel appointed administrators and on 10 June 2016 the administrators advised Alleasing of the defective and ineffective registrations and as a result, Alleasing’s security interest had immediately vested in OneSteel. On 14 June 2016 Alleasing lodged new Financing Statements for the crusher and spare parts using OneSteel’s 9 digit ACN and on 17 June 2016 Alleasing amended the original registrations to replace the ABN with the ACN.

It was agreed the crusher and parts leases were PPSA leases, however, the matter hinged on the following issues:

  • whether Alleasing correctly perfected the lease to OneSteel by registration within the meaning of Section 153 of the PPSA;
  • if the registration was defective, was it a seriously misleading or particular defect mentioned in Section 165 so as to render it ineffective;
  • whether the interest vested in OneSteel because in the circumstances of this case, a vesting would be an acquisition of property on other than just terms; and
  • whether the time for registration of the second registrations should be extended.

The court found that the first registrations of the crusher and spare parts was ineffective within the meaning of Section 165(b) of the PPSA because the relevant ‘data’ was the 9 digit ACN not the 11 digit ABN. This is notwithstanding that the ABN in fact contained the 9 digit ACN. A PPSR search of the registrations, would only return the details of what has been registered and a search by ACN on the PPSR for OneSteel would not return any registrations using OneSteel’s ACN. The court held the defect was also seriously misleading because the omission of the ACN meant that searchers using one of the authorised modes of PPSR search would not discover the registration regardless of whether anyone was in fact misled, the defect only needed to have the capacity or potential to mislead and the court held that it did.

Alleasing argued it was an unjust acquisition of property for the lease to vest in the grantor however, this argument did not hold up in court on the basis that Section 267 did not affect an acquisition of property at all but represented a genuine adjustment of the competing rights, claims and obligations between owners of interests in personal property.

Finally, as to whether an extension of time was available under section 588M of the Corporations Act 2001 (Cth), the court stated that this provision was not concerned with unperfected interests and would only assist with preventing a perfected interest from vesting.

An appeal to the NSW Court of Appeal is expected.

This case is another expensive illustration of the significance of ensuring a Security Interest is properly registered and therefore perfectly perfected on the PPSR in accordance with the PPSA and its regulations.