This article highlights how important it is to correctly register your rights over your own property when hiring out equipment on the Personal Properties Security Register (PPSR). Near enough is not good enough and ownership is no longer King under the Personal Properties Securities Act 2009 (Cth) (PPSA). The recent decision of the NSW Supreme Court (OneSteel Manufacturing Pty Ltd v Alleasing Pty Ltd) is a telling example of the catastrophic impact of an imperfect registration on the PPSR.

This decision once again highlights the significant risks associated with incorrect registrations on the PPSR. If you require assistance with the PPSR or wish to know more about protecting your interests as an owner of hired assets, please contact us.

In October 2014, Alleasing Pty Ltd (Alleasing) and OneSteel Manufacturing Pty Ltd (OneSteel) entered into leasing agreement for mining and plant equipment with a total value in excess of $23million. A lease of assets for greater than 12 months or for a non-defined term is now recognised as security interest under the PPSA and is capable of registration on the PPSR. Where perfected by proper registration on the PPSR, as a PMSI, the owner of the hired assets is afforded protection in the form of superior priority amongst a potentially long list of prior registered secured and unsecured creditors if the hirer is placed into administration, bankruptcy or liquidation.

Alleasing, as the owner of the hired assets, registered their security interest on the PPSR over OneSteel’s 11 digit ABN, not the hirer’s 9 digit ACN. In April 2016, OneSteel entered into voluntary administration and the administrators informed Alleasing that their security interests were defective and subsequently ineffective as they were not registered against the ACN of OneSteel.

Section 153 of the PPSA and the Personal Properties Securities Regulations 2010 (Cth) (Regulations) outline that a Financing Statement (PPS registration document) created with respect to a security interest must refer to the ACN where the grantor/hirer is a company. At all material times, OneSteel as hirer, had an ACN and the company was not the trustee of a trust, nor the responsible entity of a registered scheme, etc… Accordingly, the registrations were defective as they had not been made against OneSteel’s ACN.

Under the PPSA, a defective registration will be ineffective where: (1) the defect is seriously misleading or (2) the defect is one of the defects as outlined in section 165 of the PPSA. Specifically, section 165(b) of the PPSA states that a registration is ineffective if a search of the PPSR by reference to the grantor’s details required to be contained in the Finance Statement does not disclose the registration. A search of OneSteel’s ACN on the official PPSR failed to reveal the registrations of Alleasing, thereby rendering the registrations ineffective.

Further, the Court held that the defective registrations were also ineffective by virtue of being ‘seriously misleading’ under section 164(1)(a) of the PPSA as searching the PPSR with OneSteel’s ACN had the potential to mislead a third party searcher into thinking that there was no security interest lodged against the company. Alleasing argued that the registrations were not seriously misleading as the administrators had indeed discovered the registration through searches they conducted. The Court rejected this argument, relying on section 164(2) of the PPSA which declares that it is unnecessary to establish that anyone was in fact misled by the defective registration.

Ultimately, the Court ruled that Alleasing’s interest in the assets vested in OneSteel immediately prior to OneSteel entering voluntary administration, pursuant to section 267 of the PPSA. Despite Alleasing re-registering the interests on the PPSR against OneSteel’s ACN, the Court declared that no extension of time was available to validate the registrations and amendments after the administrators had been appointed.
In essence, the 2 extra digits of an ABN compared to an ACN used in the PPS registration resulted in $23million of assets owned by Alleasing vesting in the Administrator of OneSteel, to be used for the benefit of the creditors of OneSteel, not the original owner, Alleasing.

The decision once again highlights the significant risks associated with incorrect registrations on the PPSR.