Are the parties correctly identified?

It is critical to correctly identify the parties. Registrations that are incorrectly registered will be ineffective, with potentially devastating financial results.

The Personal Property Securities Regulations 2009 (Cth) provide detailed requirements on how to correctly identify an entity, and the courts require strict compliance with these regulations.

Companies and trusts

The most common registrations involve companies and trusts. We set out below the basic rules for registering against ordinary companies or trusts (though please note that this is not intended as a comprehensive statement of the regulations, and you should seek professional advice if you are unsure of how to correctly identify a party):

1. A company acting in its own capacity must be identified using its Australian Company Number (ACN), not by its ABN.
2. A trust that has an Australian Business Number (ABN) must be identified by its ABN, not by the ACN of its trustee company.
3. A trust that does not have an ABN but has a corporate trustee must be identified using the ACN of the corporate trustee.

An example of what can go wrong if you get the registration incorrect is provided by the case In the matter of OneSteel Manufacturing Pty Limited (administrators appointed) [2017] NSWSC 21, where a lessor reportedly lost $23 million worth of assets because it registered a security interest to protect its assets against the borrower company using its ABN rather than its ACN. The Court held that the registration was ineffective. Given that the borrower had gone into administration, the lessor’s interest was defeated by the administration, and they became an unsecured creditor, effectively losing the $23 million worth of assets. It was a very simple yet very costly mistake.

Furthermore, if a grantor’s situation changes (e.g. a trust obtains an ABN), a secured party must update their registration within 5 business days of becoming aware of the change, or their registration will become ineffective.

An example where a secured party failed to update their registration can be seen in the case In the matter of Psyche Holdings Pty Limited [2018] NSWSC 1254. In this case, a secured party had correctly registered a security interest against a trust that had a corporate trustee and no ABN, using the ACN of the corporate trustee. The trust subsequently obtained an ABN. The secured party’s director learned of this but failed to update the PPSR registration. Five years later, the grantor applied to the New South Wales Supreme Court under section 588FM Corporations Act 2001 requesting an extension of time to amend the registration. In this case, the Court granted the extension because the failure to update the registration was inadvertent and did not prejudice third parties. However, had there been competing secured parties or had the company been in liquidation, the outcome would most likely be different.

Individuals

If you are registering against an individual grantor, you should register using the person’s name and date of birth as given on an Australian driver’s licence. If they do not have a driver’s licence, the Regulations provide a list of other documents that you can use to identify a party.

Searching the PPSR

It is also important that you correctly identify the party when you are searching the Register. If you fail to correctly identify the party, you may purchase assets (for example) thinking that the asset is free of encumbrances when that is not in fact the case. This may result in you losing the asset to that secured party.

Whilst the PPSR is designed so that you only need to search the correct identifier, it is often advisable to search by multiple possible identifiers (e.g. both by ACN and ABN) to identify possible issues with prior registered security interests. For example:

1. Sometimes it may not be clear whether an asset belongs to a company or a trust of which the company is a trustee, and searching multiple identifiers could help identify potential issues,
2. If a grantor’s details change (e.g. a trust that did not originally have an ABN obtains an ABN), it is possible that a secured party’s existing security interest registered using the grantor’s former details remains effective if that secured party has not become aware of the change in the grantor’s details, and
3. Some transitional registrations (i.e. registrations under old security regimes prior to the introduction of the PPSR) may use incorrect identifiers. Whilst these transitional registrations would now be ineffective since the transitional period has passed for secured parties to amend their transitional registrations, you may still want to be aware of potential issues.

If you can avoid a dispute by carrying out proper searches, this is often more beneficial than later on establishing the correctness of your position against a third party who is likely to be disadvantaged if their security interest is defective.

Further information

For a general introduction to the Personal Property Securities Register, read our previous article.

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How can Sharrock Pitman Legal assist?

If you require any assistance with searching or registering on the PPSR, please do not hesitate to contact us on 1300 205 506. We can conduct both searches and registrations for your business, and we also offer training to assist businesses who deal with the PPSR regularly to have proper guidelines in place.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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