Take Care with PPSR

Most lawyers should be familiar with the concept of the Personal Property Security Register, which allows someone with a security interest in a piece of personal property to register that interest - much the same as a bank registering a mortgage over land that it has loaned money against.

Personal property is any property that isn't land or something fixed to land. This could be a car, or business equipment, or stock in trade.

The legislation is unforgiving when its comes to deadlines and ensuring that the security interest is properly registered. Strict compliance is required and a recent case of OneSteel Manufacturing Pty Ltd (administrators appointed) [2017] NSWSC 21 (31 January 2017) has illustrated the courts' willingness to uphold a high level of diligence.

OneSteel

In this case, a company (Alleasing Pty Ltd) leased a crushing and screening machine to OneSteel for 6 years. The cost of designing and installing the machine was funded by Alleasing by way of loan to OneSteel. To protect its loan to OneSteel, an employee of Alleasing registered the security interest over the Crusher.

So what was the problem?

The employee registered the security interest by reference to OneSteel's ABN and not its ACN. A simple error. One which the employee did not realise was fatal.

The legislation requires that all registrations against a company reference an ACN.

When OneSteel went into administration, the administrators informed Alleasing that it consisdered the registrations to be defective and ineffective. As a result Alleasing made new registrations using the ACN and commenced Supreme Court proceedings seeking declarations that the first registrations were valid, or that the second registrations could be relied upon even though the time limits for registration had expired.

Judgment

The Supreme Court agreed that a registration using an ABN for a company is defective. A defect in registration renders it ineffective if, among other things, it renders the registration not disclosable on a search by reference to the grantor's (OneSteel's) details.

Therefore, the Court upheld that it was vital to use the ACN as anyone searching the register for OneSteel will not find the security interest if it is registered against an ABN. By not being disclosable, the registrations rendered the register seriously misleading - another cause to find that the registration is ineffective.

Alleasing's claim was dismissed with costs.

Lesson

Always use the ACN when registering a security interest against a company! The PPSR is at times brutal. Simple mistakes can be very, very costly. Ensure that staff are adequately trained and there is a system of double checking registrations to avoid errors.