Do you Own and Hire Out Goods? Typing in 2 More Digits Could Cost $20+million
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.
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.
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.
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.
The decision once again highlights the significant risks associated with incorrect registrations on the PPSR.