Administrative oversights are easy enough to make – no matter how careful your eye is – but when it comes to the Personal Property Securities Register (PPS Register), errors can be very costly.
A recent case in the NSW Supreme Court, regarding OneSteel Manufacturing Pty Limited (admin appointed) is a powerful reminder that seemingly tedious paperwork in relation to the PPS Register must always be checked very carefully.
Paperwork For PPS Leases – The Importance of Crossing Those Ts
PPS leases must be registered under the Personal Property Securities Act 2009 (Cth) (PPSA) to protect the secured party’s (in this case, Alleasing) interest in the relevant equipment (a crusher) used by relevant lessee (in this case, OneSteel) against other creditors.
If the lease is not properly registered, under section 267 of the PPSA, if OneSteel goes into liquidation the lease vests in OneSteel. Alleasing is not entitled to get the crusher back and is an unsecured creditor – a status which means they rank behind any secured creditors (and in practice, would get next to nothing back in a winding up scenario).
For security interests over non-consumer property, the PPSA requires financing statements to include the grantor’s details, as required by regulations. In this case, the applicable regulations required Alleasing’s financing statements to state OneSteel’s Australian Company Number (ACN).
But this is where the trouble started…
When the financial statement was lodged in May 2015, Alleasing made a mistake by failing to include OneSteel’s ACN, and, instead, listed OneSteel’s Australian Business Number (ABN) in the ABN box – leaving the ACN box blank.
The error was not picked up until after OneSteel had gone into administration in April 2016.
The administrators of OneSteel argued that, by virtue of this error, Alleasing did not have an effective registered security interest – and this meant that the equipment became OneSteel’s property.
Searching the PPS Register
To deem a registration defective under section 164 of the PPSA, some specific criteria must be met.
First, it must be considered seriously misleading. Next, it must be proven that no PPS Register search using the identifying details required by the regulations (ie OneSteel’s ACN) would reveal the existence of the security interest.
The PPS Register can either be searched directly through the PPS Register’s services, or indirectly, through 3rd party commercial search providers. In the case of the latter search options, some commercial search providers’ platforms feature enhanced functionality, that enables ‘combined grantor searches’ to be undertaken – searches that automatically perform multiple PPS Register searches using both ABN and ACN.
In arguing that the registration was not seriously misleading or otherwise defective, Alleasing pointed out that a search of OneSteel’s ACN on a commercial platform could have revealed the registration (through the platform automatically searching using OneSteel’s ABN as well). In fact, the administrators actually used a commercial service, which is what brought the registration to their attention.
However, Alleasing’s arguments were rejected by the court. The court determined that, because using the basic search functionality of the PPS Register would not have revealed the existence of the registration, the registration was, indeed, defective, seriously misleading and not capable of location using the basic search function.
In making that finding, the court emphasised the importance of ensuring that the PPS Register is accurate, in order to maintain confidence with the public, who need to rely on the outcome of PPS Register searches. The Court therefore declared that the crusher had vested in OneSteel.
Protect your security interests
The case is a potent reminder that thorough completion and proofreading and double-checking of PPS registrations is a critical part of business transactions to ensure that security interest are genuinely effective. In this case, a seemingly trivial human error led to costly consequences.
Many businesses supply all team members with relevant checklists to follow when completing PPS registration forms. This is an example of a small procedural step which can potentially minimise serious risks.
Note: This insight contains commentary for general reference purposes only. It does not constitute legal advice and should not be relied on for any purpose. You should always seek specific legal advice based on your own individual circumstances.