In Re OneSteel Manufacturing Pty Ltd (Admins Appt)¹ the Court considered whether registrations of security interests on the Personal Property Securities Register (PPSR) against the ABN of a grantor instead of the ACN as required under the Personal Property Securities Act 2009 (Cth) (PPSA) was effective and whether an order of extension of time for registration under section 588FM of the Corporations Act 2001 (Cth) (Act) could relieve a secured party from the consequences of incorrect registration where the security interest has already vested in the grantor pursuant to section 267 of the PPSA.

Background

Alleasing Pty Ltd (Alleasing) entered into a master lease agreement with OneSteel Manufacturing Pty Ltd (OneSteel) and two rental schedules were subsequently entered into for the lease of equipment which, pursuant to section 12 of the PPSA, constituted PPS leases.

Alleasing registered financing statements over its security interests the subject of the PPS leases by reference to OneSteel’s ABN and not its ACN (Original Registrations). Section 153 of the PPSA (and its corresponding regulations) requires that where the grantor of the security interest (in this case, OneSteel) is a body corporate with an ACN, registration is to be made against its ACN.

Administrators were appointed to OneSteel in April 2016. The administrators informed Alleasing that they considered the Original Registrations to be defective and as a result of section 267 of the PPSA Alleasing’s security interest had vested in OneSteel when the administrators were appointed to OneSteel.

In attempt to remedy the position, Alleasing lodged new financing statements, this time using OneSteel’s ACN (Second Registrations). Alleasing also amended the Original Registrations to include the ACN of OneSteel.

Alleasing then filed an originating summons claiming the following:

• declarations that its security interests under the PPS leases were validly perfected and had not vested in OneSteel;
• alternatively, orders pursuant to section 588FM of the Corporations Act extending the time for lodgement of financing statements to the date the Second Registrations were made; and
• a declaration that section 267 of the PPSA is invalid as it effects an acquisition of property (by vesting Alleasing’s security interest in OneSteel) other than on just terms.

Considerations

Defect in registration

Section 164 of the PPSA renders a registration of security ineffective if:

• there is a defect in the register; and
• there exists a seriously misleading defect in any data relating to the registration OR there is a defect of the kind mentioned in section 165 of the PPSA.

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) where a 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 not capable of disclosing the registration.

The Court held that the Original Registrations were defective in that they did not, as required, include OneSteel’s ACN² and because of the omission, parties searching the PPSR would not discover the registration. The Court found that this was seriously misleading and therefore the Original Registrations were deemed ineffective pursuant to section 163(b) of the PPSA.

Extension of time to register

Relief under section 588FM of the Act (an order to extend time for registration) relieves a secured party from the consequences of failing to register their security in time by allowing the Court to fix a “later time” for registration. Section 588FM is discussed in further detail in our article Accolade Wines Australia Limited – extending the time for PPS. Click here to read more.

However this relief 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).

The Court held that 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.

Vesting unconstitutional

Under section 267(2) PPSA, a security interest vests in the grantor (in this case, OneSteel) immediately before a specified event occurs, such as appointment of an administrator, and a security interest granted by the grantor is unperfected at the relevant time (in this case, the commencement of the administration).

Section 252B of the PPSA provides that any provision of the PPSA that would result in an acquisition of property other than on just terms (within the meaning of section 51(xxxi) of the Constitution of Australia) will not apply.   Section 51(xxxi) of the Constitution provides that the Commonwealth has the power to make laws with respect to "the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws."

Alleasing submitted that upon appointment of the administrators, to vest their interest in the goods the subject of a PPS lease to OneSteel, even though Alleasing was until then the true owner of the subject matter of the lease, then Alleasing’s valuable property would be acquired by OneSteel, in return only for the right to prove in the insolvency as an unsecured creditor for damages for the value of the goods under PPSA s 269, was not just.

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 security the subject of the PPS leases than contemplated under the PPSA. 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”.³

Lavan comment

Insolvency practitioners should carefully review the PPSR records (including the date and time that a security interest is registered) as this information may become relevant in determining whether or not a security interest vests in the insolvent company or not.

The decision is a further reminder for all parties to ensure that they register their interests on the PPSR in a timely manner to avoid difficulties in their enforceability. Had Alleasing in this case correctly registered their security interests, those interests would not have vested in OneSteel with the effect that their interests were effectively lost.