It is often stressed how important it is to correctly register a security interest on the Personal Property Securities Register (PPSR). The Supreme Court of New South Wales In the matter of OneSteel Manufacturing Pty Limited (administrators appointed) [2017] NSWSC 21 has again reiterated the costs of getting it wrong.

Background

In October 2014, OneSteel Manufacturing Pty Limited (OneSteel) entered into a master leasing agreement with Alleasing Pty Ltd (Alleasing) under which OneSteel leased from Alleasing certain plant and equipment, including an ore crusher and spare parts. Alleasing funded the design, supply and installation of the crusher at a total cost of $23 million.

The leasing agreement was a PPS Lease and so the security interest was required to be registered as a Purchase Money Security Interest (PMSI) – this was not in dispute. Alleasing registered its PMSI security interests on the PPSR. However, the interest was registered against the ABN of OneSteel as opposed to its ACN.

Section 153 of Personal Property Securities Act 2009 (Cth.) (PPSA) requires a financing statement to include the grantor’s details as prescribed by the Personal Property Securities Regulations 2010 (Cth.) (PPS Regulations).  Clause 1.3 of Schedule 1 of the PPS Regulations provides that where the grantor is a body corporate that has an ACN, the financing statement must refer to the grantor’s ACN. Sections 164(1)(b) and 165(b) of the PPSA provides that a registration is ineffective if a search of the grantor’s details on the PPSR (as prescribed by the PPS Regulations) is not capable of disclosing the registration.

In this instance, as OneSteel’s ACN was not included in the financing statement, a search of the PPSR by reference to OneSteel’s ACN would not have revealed Alleasing’s registration.

On 7 April 2016, OneSteel appointed administrators. The administrators advised Alleasing that they were of the view that Alleasing’s registrations were ineffective and that, pursuant to section 267 of the PPSA, Alleasing’s security interest in the equipment had vested in OneSteel. Following this advice, in June 2016 Alleasing lodged new financing statements referring to Onesteel’s ACN. Alleasing also amended its original registrations to include Onesteel’s ACN. Due to the elapsed time, the second registrations were outside the prescribed 15 business days for a PMSI registration (section 62 of the PPSA), and also the 20 business day period allowed for non-PMSI registrations (section 588FL of the Corporations Act 2001 (Cth.) (the Corporations Act).

In order to validate the post-appointment registrations and amendments, Alleasing tried to bring an application pursuant to section 588FM of the Corporations Act to extend the time for registration of a security interest under section 588FL.

The decision

Brereton J held, among other things:

1. Not including Onesteel’s ACN in the original financing statement was fatal. The registration of a security interest by reference to an ABN where the grantor has an ACN will not perfect the security interest.  As the registration was not in accordance with the PPS Regulations and a search of the PPSR would not have disclosed the original registration, the registration was ineffective;
2. As the security interest was ineffective, Alleasing’s security interest in $23million worth of equipment vested in OneSteel pursuant to section 267 of the PPSA immediately before the Administrators’ appointment; and
3. Section 588FM of the Corporations Act is only available in respect of security interests perfected at the ‘critical time’ (i.e. prior to the appointment of the Administrators).  As the Administrators were already appointed to OneSteel by the time the second registrations were made, section 588FM was not available for relief. In any event, by reason of section 267 of the PPSA, the property had already vested in Onesteel.

Lessons 

This case is important for secured parties and insolvency practitioners. In respect of secured parties, it is imperative that the registration is within time and otherwise complies with the PPS Regulations. Importantly for insolvency practitioners, PPSR registrations should be carefully scrutinised for technical defects upon appointment.

ERA Legal is always available to help.  Should you need assistance with conducting or reviewing PPSR registrations, please do not hesitate to contact us.