In Re OneSteel Manufacturing Pty Ltd (Admins Appt) 1, the Court considers whether registrations of security interest against the ABN of a grantor instead of ACN as required under the Personal Property Securities Act 2009 (Cth) (PPSA) is effective and whether an order for an extention of time for registration under s588FM of the Corporations Act 2001 (Cth) (Corporations Act) can divest a security interest which has already vested in the grantor pursuant to section 267 of the PPSA following insolvency of the grantor.
Alleasing Pty Ltd (Alleasing) entered into a master lease agreement with OneSteel Manufacturing Pty Ltd (OneSteel). Two rental schedules were subsequently entered into for the lease of equipment - one for a crushing and screening plant, and the other for its spare parts. Each lease was for a term of 6 years.
The crusher lease and the parts lease are PPS leases within meaning of the PPSA. Alleasing registered financing statements for both the crusher and the parts (original registrations).
However, the registrations were made by reference to OneSteel’s ABN and not its ACN. Section 153 of the PPSA (and its corresponding regulations) require that where the grantor of the security interest (in this case, OneSteel) is a body corporate with ACN, registration is to be made against its ACN.
Administrators were subsequently appointed to OneSteel in April 2016. The administrators informed Alleasing that they considered the original registrations to be defective and ineffective and as a result of section 267 of the PPSA, Alleasing’s security interest had vested in OneSteel when administrators were appointed to OneSteel.
Alleasing lodged new financing statements, this time using OneSteel’s ACN (the second registrations). Alleasing also amended the original registrations to include the ACN of OneSteel. Alleasing then filed original summons claiming generally, the following:
Section 164 of the PPSA renders a registration of security ineffective if:
Section 165(b) of the PPSA specifies that a defect in a registration exists (in a case where the collateral is not required by the regulation to be described by a serial number in the register) no search of the register by reference only to the grantor’s details required to be included in the registered financing statement (in this case, the ACN), is capable of disclosing the registration.
The Court held that:
There was a defect in the registration in that the ACN as required under the regulations was not included in the financing statement. This is the case despite that the last 9 digits of OneSteel’s ABN corresponds with its ACN – the important point being that a search by reference to the ACN alone would not reveal the registrations in favour of Alleasing.
Alleasing argued that section165(b) is not applicable because there were “combined grantor searches” which could be undertaken through business-to-government (“B2G”) interfaces which, if only a company’s ACN was entered, would reveal registrations against the same company’s ABN. Therefore Alleasing argued that the entry of a company’s ACN is “capable of disclosing” registrations which were made using its ABN.
The Court rejected this argument, noting that the “combined grantor search” provided by some B2G interfaces in fact do not use only the ACN when searching the Personal Property Securities Register (“PPSR”).
When an ACN is entered in the search platform of a B2G interface, it first searches other databases to find the corresponding entity and ABN and then initiates multiple searches of the PPSR, each using a single parameter of ACN, name and ABN. Therefore, the search results reveal what is registered against ABN of an entity (despite the searcher entered the ACN) only because a separate search using ABN is initiated by the B2G platform.2
The Court further noted that section 171 of the PPSA only authorises searches by reference to grantor’s details which are required to be included in a registered financing statement, in this case the ACN.
The Court also held that the failure to register using ACN as required under the regulations is a seriously misleading defect under section 164 of the PPSA.
There are 2 methods of searching the PPSA: one is the online interactive form accessible through the official PPSR website while the other is an electronic communication through a computer-to-computer interface, such as from a B2G provider. The fact that a direct search of the PPSR through the PPSR website using only the ACN as a search parameter would not reveal the original registrations is sufficient to render it seriously misleading.
Relief under section 588FM of the Corporations Act (an order to extend time for registration), is only available if the security interest the subject of the order being sought has been registered at the ‘critical’ time (which generally refers to the time the grantor becomes insolvent).
Even if an order under section 588FM is granted, it will not reinstate a security interest which has already vested in the grantor by virtue of the insolvency of the grantor under section 267 of the PPSA.
For the same reason, any extension of time under section 293(1)(a) of the PPSA, being an extension of time for registration in order for the holder of the purchase money security interest to retain its priority, will not assist Alleasing.
The Court also rejected Alleasing’s argument that section 267 of the PPSA is invalid on the basis that it effects an acquisition of property other than on just terms and would therefore fall foul of section 51(xxxi) of the Constitution.
The Court held that section 267 does not effect an acquisition of property at all - as that argument is premised on Alleasing having larger and more ample rights over the crusher and the parts than contemplated under the PPSA.3 Even if it effects an acquisition, it is not an acquisition within the meaning of section 51(xxxi), but rather, a “genuine adjustment of the competing rights, claims and obligations between owners of interests in personal property”.4
As a result, Alleasing lost its security interest over the crusher and the parts despite that the design, supply, installation, assembly, construction and commissioning of the crusher by its manufacturer was funded by Alleasing at OneSteel’s request.
There was also no evidence or suggestion that any creditor was in fact misled or suffered any loss or detriment by the non-disclosure of Alleasing’s registration in a PPSR search conducted by reference to only OneSteel’s ACN.
This case highlights the paramount status of the PPSR and reminds us of its fundamental purpose, which is to facilitate the certainty of any prior registrations by any person accessing the PPSR.
From a security holder’s perspective, not only is it crucial to register a financing statement in time, it is equally important to ensure that registration is made in accordance strictly with the requirements under the PPSA. Otherwise, the security holder may risk losing its priority contemplated and its security interest entirely.
If for any reason any registration has not been done in accordance with the requirements under the PPSA, it is critical that immediate action be taken to rectify the situation and where applicable, a court order under section 588FM of the Corporations Act be sought to extend the time for the re-registration of the financing statement. Once the grantor becomes insolvent and the security interest vests in the grantor - it will be too late!