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A 2 digit error has resulted in a company losing over 23 million dollars’ worth of equipment
In the matter of OneSteel Manufacturing Pty Limited (administrators appointed)  NSWSC 21 highlights the repercussions of not getting security interests properly registered on the Personal Property Securities Register (PPS Register). In particular the Court has provided guidance on the application of the Personal Property Securities Act 2009 (Cth) (PPSA) and the consequences of defective registrations.
On 16 October 2014 Alleasing Pty Limited (Alleasing) and OneSteel Manufacturing Pty Ltd (OneSteel) entered into a rental agreement whereby Alleasing rented certain equipment to OneSteel. The equipment to be rented was identified in separate rental schedules that were executed as and when equipment was required.
The equipment the subject of the dispute was rented under separate rental schedules by OneSteel as follows:
- crushing and screening plant rented from 1 May 2015 for a term of six years; and
- certain spare parts for the crushing and screening plant for a term of six years starting on or about 1 July 2015.
Both parties agreed that the rental agreement was a PPS lease and a security interest within the meaning specified in section 12 of the PPSA.
Alleasing registered security interests on the PPS Register as follows:
- crushing and screening plant security interest registered on 17 October 2014; and
- certain spare parts for the crushing and screening plant security interest registered on 7 July 2015.
Importantly the security interests were registered against OneSteel’s ABN (an 11 digit identifier) not its ACN (a 9 digit identifier).
On 7 April 2016 administrators were appointed to OneSteel Manufacturing. Replacement administrators were appointed on 12 April 2016.
The rental agreement was not terminated prior to the appointment of the administrators and the equipment remained in OneSteel’s possession when the administrators were appointed.
On 10 June 2016 the administrators advised Alleasing that they considered the security interests defective and not perfected and that pursuant to section 267 of the PPSA, Alleasing’s security interest had vested in OneSteel. The administrators’ position was that Alleasing had not perfected its security interest because it had registered it against OneSteel Manufacturing’s ABN rather than its ACN.
Alleasing then registered two new financing statements against OneSteel, and amended its earlier PPSR registrations in an attempt to rectify the error identified by the Administrator.
In bringing the action to Court, the issues for determination were as follows:
- whether the original registrations were defective of being registered against OneSteel’s ABN rather than its ACN;
- if so, whether those defects rendered the registrations ineffective;
- whether section 267 of the PPSA disapplied by virtue of section 252B of the PPSA to the extent that section 267 of the PPSA would result in an acquisition of property from a person other than on just terms (within the meaning of paragraph 51(xxxi) of the Constitution); and
- whether relief was available to Alleasing under section 588FM of the Corporations Act 2001 (Cth) (Corporations Act) or section 293 of the PPSA;
The Courts findings
In determining the issues as noted above the Court found that:
- A registration against a corporate grantor’s ABN rather than its ACN will be ineffective under sections 164(1)(b) and 165(b) of the PPSA as the regulations required the ACN to be used and not the ABN. This was found regardless of the fact that the ABN registered included the 9 digits of OneSteel’s ACN.
- Such a registration will also be ‘seriously misleading’, and therefore ineffective, for the purposes of section 164(1)(a) of the PPSA as a search of OneSteel’s ACN would not have returned Alleasing’s security interest.
- The vesting of an unperfected security interest under section 267(2) of the PPSA is not an acquisition of property otherwise than on just terms for the purposes of section 252B of the PPSA and paragraph 51(xxxi) of the Constitution. In addition even if there was an acquisition, paragraph 51(xxxi) of the Constitution would not assist as the acquisition of property was not going to be applied for a purpose in respect of which the Commonwealth has power to make laws, but rather was being applied for OneSteel’s own purposes.
- the court could not make an order under section 588FM of the Corporations Act to extend the time for registration where the relevant security interest was not perfected at the time administrators were appointed.
Accordingly, Alleasing’s interest as the lessor and owner of the equipment vested in OneSteel with effect that the Administrators were able to deal with the equipment as they see fit.
It is important to ensure that all security interests are properly registered on the PPSR using the correct identifiers and that that the security interests are registered within the time frames specified in both the PPSA and the Corporations Act. The consequences of failing to register, or registering a defective security interest, are that the security interest will be invalid, and the collateral will vest in the grantor in the event of an insolvency administration. As the case discussed above shows a simple error of using a Company’s ABN will invalidate a security interest and can have a large adverse outcome for the secured party. To ensure you are protected, Rostron Carlyle Lawyers can review and draft your agreements and register your security interests.Sean Steindl