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In Re OneSteel Manufacturing Pty Ltd (administrators appointed)  NSWSC 21, the Supreme Court of NSW has awarded $23 million for an unperfected security interest arising out of registrations made on the Personal Property Securities Register [“PPSR”] against a grantor’s Australian Business Number (“ABN”) instead of the Australian Company Number (“ACN”).
Alleasing Pty Ltd [“the Plaintiff”] brought these proceedings against One Steel Manufacturing Pty Ltd [“OneSteel”] in relation to a lease between them. OneSteel rented equipment from the Plaintiff under this lease and the Plaintiff had a security interest in this equipment which had been registered on the PPSR on two separate occasions. The Personal Property Securities Act 2009 (Cth) (“PPSA”) requires registrations for security interests on the PPSR to identify the grantor using their ACN. The registrations on the PPSR in these proceedings identified OneSteel by its ABN instead of its ACN, meaning that these registrations were ineffective for the purposes of s164 of the PPSA.
OneSteel entered into voluntary administration on 7 April 2016. The administrators for OneSteel identified the ABN defect in the registrations on the PPSR and asserted that the Plaintiff’s security interests had vested in OneSteel by reason of s.267 of the PPSA, where an unperfected security interest vests in the grantor immediately prior to the grantor's insolvency. The administrators argued that the original registrations were ineffective because the use of the ABN was a defect in the registrations under s.164 of the PPSA, by reason of s.165(b) of the PPSA. Where the collateral included in a security interest cannot be identified using a serial number, s.165(b) of the PPSA provides that a search of the grantor's ACN must be capable of disclosing the registration. The administrator’s position was that the Plaintiff’s registrations were not disclosed as a result of the grantor’s (OneSteel) ACN not being attributed to the registrations, which rendered the registrations ineffective.
In order to determine whether the Plaintiff’s security interests vested in OneSteel, the court had to determine whether the original registrations were valid. The Plaintiff argued that using OneSteel’s ABN did not render the original registrations ineffective because they contained the data required by the PPSA that would allow a search to disclose the registrations, namely the 9 numbers necessary for OneSteel’s ACN were included in the 11 numbers for OneSteel’s ABN. On this basis, the Plaintiff argued that there was no defect in the registrations for the purposes of ss. 165 or 165 of the PPSA.
The Court rejected the Plaintiff’s argument because the ABN and ACN were issued by different agencies and did not contain the same data. The Court held that for the purposes of determining whether a registration was defective, regard was only to be had to the provisions of the PPSA. Because of the requirement under the PPSA that registrations must be identified by reference to a single search using only an ACN, the absence of OneSteel’s ACN from the registrations was considered by the Court to be a seriously misleading under s.164 of the PPSA.
By registering its security interests on the PPSR against an ABN and not an ACN, the Court held that the grantor’s PPSR registrations were ineffective, defective and seriously misleading. When registering on the PPSR, care must be taken when registering security interests on the PPSR to ensure that consideration is given to the matters sat out in s.165 of the PPSA and the financing statement for the registration contains all prescribed information.
These proceedings reaffirm the constitutionality of s.267 of the PPSA, which provides that a security interest that is unregistered at the beginning of an insolvency will vest in the grantor of that security interest. They also serve as a reminder to secured parties to ensure that that their security interests are properly registered on the PPSR and the potential consequences of failing to do so.
Reviewing registrations already on the PPSR can assist in avoiding technical defects which may result in a security interest being considered to be ineffective, defective or seriously misleading. Lessors or parties supplying goods or services on secured terms should also take notice of this recent decision from the Supreme Court and immediately act to address any registrations which identify a corporate grantor using an ABN rather than an ACN, or that contain other errors or omissions. Where a potentially defective registration has been made on the PPSE, a new registration made prior to the appointment of an insolvency administrator will provide a basis for court-ordered relief.