Don’t ‘trust’ that the PPSR security interest is right.
Finding registration defects is not unusual for insolvency practitioners under the Personal Property Securities Act 2009 registrations, especially when dealing with a corporate trustee. Consider the following as a prime example of a security interest registration that went wrong!
Recently, we were appointed liquidator to an entity whose only asset was a vehicle subject to a security interest registered by a major finance company. We found the company acted as a corporate trustee and applied for the vehicle’s finance as the trustee of a discretionary trust.
However, section 153 of the Personal Property Securities Act, regulation 5.5(1) and schedule 1 of the Personal Property Regulations 2010 is quite specific that where the grantor entered the agreement as a trustee of a trust that holds an Australian Business Number (ABN), the registration must be recorded over the trust’s ABN for it to be valid. Unfortunately, for the finance company, they registered their interest on the Personal Property Securities Register (PPSR) over the company’s Australian Company Number (ACN).
After little correspondence between us and the finance company, they quickly conceded that their registration was ineffective and as such they relinquished security over the vehicle, effectively giving ownership to the insolvent entity. The vehicle has since been recovered by our office and will be realised for the benefit of all creditors.
The Supreme Court of New South Wales recently considered this position, in Onesteel Manufacturing Pty Ltd (Administrators Appointed) NSWSC21, where in similar circumstances to our matter, the finance company, Alleasing, registered its security interest on the PPSR but incorrectly included Onesteel’s ABN rather than its ACN. The Court held that the registration was rendered ineffective and that the security interests that were defective at the time of administrator were appointed, will vest in the grantor, effectively giving ownership of the asset to the insolvent entity.
Therefore, our recent case example and the recent court case, has reiterated just how important it is to ensure the accuracy of registering security interests for the type of structure that you are dealing with, e.g. corporate trustee or that as a stand-alone company.
The key points to note are:
- Security interests registered against the ABN of a corporate grantor where the corporate grantor has an ACN will be deemed ineffective and ‘seriously misleading’.
- Where the grantor enters the agreement as a trustee of a trust that holds an ABN, the registration must be recorded over the trust’s ABN for it to be valid.
- Where the grantor enters into an agreement as a stand-alone company, the registration must be recorded over the ACN for it to be valid.
Advisors assisting with PPSA registrations, should note that being aware of the complexity surrounding registering of security interests is critical, and in a situation where there is a defect on the PPSA registration, immediate action should be taken to rectify the registration. In some cases, it may be necessary to apply to court for an extension of time to rectify the interest under section 588FM of the Corporations Act 2001.