PPSA claims another victim - a $23 million asset is lost to the insolvent Onesteel Group
All businesses should be aware of the importance of properly recording security interests on the Personal Property Securities Register (PPS Register). The courts have once again reminded us of the importance of strict compliance with the legislation when registering security interests, and the potential to lose property to third parties when registrations are inadequate in the event of external administration.
In the matter of OneSteel Manufacturing Pty Limited (administrators appointed)  NSWSC 21, the creditor, Alleasing Pty Limited, leased to OneSteel Manufacturing Pty Limited plant equipment said to be worth $23million. The fact that the lease was covered by the Personal Property Securities Act 2009 (Cth) (PPSA) was not in dispute. Registrations were lodged notifying Alleasing’s interest in the equipment, but by reference to OneSteel’s ABN, not the ACN.
When administrators were appointed to OneSteel, they contacted Alleasing and informed its representatives that the registrations were defective. This caused Alleasing to lodge fresh registrations over its interest in the equipment, but this time by reference to OneSteel’s ACN. OneSteel continued to argue that the registrations were defective and the equipment had been lost to it.
Alleasing approached the court in an effort to recover its equipment. It pursued a number of arguments, including a constitutional argument which has to date not been successful in Australia in this kind of case.
Alleasing first argued that the security interest had in fact been perfected on the bases that:
- by making the first registrations with reference to the ABN, the nine digit ACN had in fact been included on the PPS Register.
- the post-adminstration registration could in effect be backdated to be effective prior to the date of appointment of the administrators.
The PPSA regime is clear that registration of a security interest where the grantor is a company (and is not trustee of a trust with an ABN) must be done by reference to the grantor company’s ACN.
The PPSA also relevantly provides that a defect in a registration will exist at a particular time where a search of the PPSR by reference to that particular time, and to the grantor’s details would not be capable of disclosing the registration.
The court found for the administrators on the basis that a search of the PPS Register by ACN alone would not reveal the registrations, and so they were defective. The court also refused to retrospectively perfect the security interest, as the subsequent registration was done after the ‘critical date’ on which the administrators were appointed to OneSteel.
The decision is an important reminder that strict compliance with the requirements of the PPSA is required when registering security interests. With the New Year only just underway, secured parties are reminded to review any registrations where this might be an issue, and to address the incorrect registration as soon as possible. If there is any concern that the grantor may be the subject of some form of external administration, it is important to seek legal advice and take steps to protect your rights. In some cases a Court application may be able to cure the problem.
As for the Constitutional argument, this was essentially that Alleasing’s property had been acquired on unjust terms in a manner not permitted by the Consitution. Fans of Australian film will remember this principle as ‘the vibe’ raised by the suburban solicitor Dennis Denuto in the film ‘The Castle’.
Unfortunately for Allleasing, the Court found no vibe and the argument was rejected essentially because the Court held that the relevant part of the PPSA is a law for adjusting right of creditors in insolvencies and not a kind of law that the Constituion will strike down. Statements made by an Alleasing spokesman and reported in the press suggest that the issue may be appealed all the way to the High Court.
Authors: Ben Hardy, Gavin Stuart, Oliver Shtein and Karen Wong