Thinking | 22 May 2017
11-figure ABN adds up to 7-figure dollar loss as Supreme Court rules on defective PPSR registration
On 2 May 2017, the Supreme Court of New South Wales handed down its decision refusing an application to extend time to register a security interest in Production Printing (Aust) Pty Ltd (in liquidation)  NSWSC 505.
The decision followed shortly after that of OneSteel Manufacturing Pty Ltd (administrators appointed)  NSWSC 21 (OneSteel) in which it was held that registering a security interest on the Personal Property Security Register (PPSR) against a grantor’s Australian Business Number (ABN) rather than its Australian Company Number (ACN) affords no protection and will result in the security interest vesting in the grantor if it becomes insolvent.
The decision highlights the following key messages:
- Parties taking security over personal property must take care when completing a finance statement to ensure that the correct details are recorded in the PPSR.
- A failure to strictly adhere to the requirements of the PPSA may render the registration ineffective and result in the security interest vesting pursuant to section 267 of the Personal Property Securities Act 2009 (Cth) (PPSA) or section 588FL of the Corporations Act 2001 (Cth) (CA) when a grantor is placed in voluntary administration or liquidation.
- To successfully make an application to extend the time for registering a finance statement under section 588FM of the CA, a compliant financing statement must be recorded on the PPSR prior to the grantor being placed into voluntary administration or liquidation.
- If a security interest vests in the grantor, the registering party will lose the benefit of it and merely become an unsecured creditor of the grantor. Although this is arguably an unjust result having regard to a defective registration often being an innocent mistake, this reflects the policy underpinning the PPSA which aims to provide certainty through primacy of the register.
The factual matters and evidence was uncontested by the parties. On 4 December 2014, the plaintiff HP Financial Services (Australia) Pty Ltd (HPFS) entered into an equipment financing agreement with Production Printing (Aust) Pty Ltd (PPA). The agreement provided that HPFS would lease printing equipment to PPA, which would, in turn, grant HPFS a security interest over that equipment1. On the same day, HPFS registered the security interest against PPA’s ABN on the PPSR. Between 5 December 2014 and 19 October 2015, HPFS and PPA entered into four leases pursuant to the equipment financing agreement, with printing equipment worth over $4,000,000 being leased to PPA.
Voluntary administrators were appointed to PPA on 22 July 2016 and informed HPFS seven days later that its registration on the PPSR was defective because it was registered against PPA’s ABN rather than it’s ACN. A liquidator was subsequently appointed to PPA on 26 August 2016. HPFS registered the security against PPA’s ACN on 6 September 2016, notwithstanding that:
- HPFS was required to register the security interest by 22 January 2016 at the latest and
- the security interest had vested in PPA when administrators were appointed to it over a month earlier.
The facts (and legal arguments discussed below) were closely analogous to those in OneSteel (see our summary of the case here). In that case, the plaintiff Alleasing Pty Limited incorrectly registered its security interest over a leased crusher against the ABN of OneSteel Manufacturing Pty Limited rather than its ACN. It sought an extension of time to register the security interest after administrators were appointed to OneSteel Manufacturing.
His Honour Justice Brereton of the Supreme Court of New South Wales rejected the plaintiff’s application. The application failed due to (among other reasons)2 the registration over the ABN being ineffective because it could not be located when searching the PPSR by reference to only the grantor’s details prescribed by regulations to be its ACN. Moreover, the registration had a seriously misleading defect in data because it could not be discovered by using an authorised mode of search.3
Significantly, however, OneSteel was not decided until a week before the final hearing of HPFS’s application.
In an attempt to recover the printing equipment, HPFS made an application in the Supreme Court of New South Wales seeking (among other orders):
- orders extending the time to register the security interest to 6 September 2016 (being the date it registered its security interest against PPA’s ACN)4 and
- a declaration that the security interest had not vested in PPA.
In support of the application, HPFS’s submissions included that:
- the registration against the ABN was effective because PPA’s ACN was contained within the ABN (an argument it acknowledged was rejected in OneSteel) and
- its security interest was temporarily perfected by its defective registration on 4 December 2014.5
His Honourable Justice Black of the Supreme Court dismissed HPFS’s application and consequently the printing equipment vested in PPA. The OneSteel decision was instrumental to this outcome, with the Court adopting Justice Brereton’s reasoning as a matter of judicial conformity and noting it was ‘not plainly wrong’.6
HPFS raised an argument that reading sections 19-21, 166 and 293 of the PPSA together had the effect of temporarily perfecting its security between the date of the defective registration (4 December 2014) and the date five business days after HPFS acquired actual or constructive knowledge of the defect (at the earliest 29 July 2016 or otherwise on 3 August 2016).7
Justice Black, after noting these submissions ‘involves some complexity and… some fine distinctions’, considered this approach was inconsistent with the PPSA’s language and purpose. Such a reading would ‘fundamentally undermine’ any certainty a person is afforded by searching the register because they would also have to consider an indeterminate number of other security interests recorded in defective financing statements that have temporary perfection for an indeterminate time.8
HPFS was ordered to pay the liquidator’s costs.
Hall & Wilcox represented the liquidator of Production Printing (Aust) Pty Ltd (in liquidation) in the proceeding.
1The security interest was a ‘purchase money security interest’ (PMSI) within the meaning of the PPSA.
2Including that the vesting of secured property in the company was not an ‘acquisition’ within the Constitution’s meaning, but rather a genuine adjustment of the competing rights, claims and obligations between owners of interests in personal property: OneSteel at .
3OneSteel at .
4Orders were required under both:
- section 588FM of the CA to prevent vesting under section 588FL and
- section 293 of the PPSA to confer the extension on the security interest’s PMSI status.
6In the matter of Production Printing (Aust) Pty Ltd (in liquidation)  NSWSC 505 at [11-12].
7Ibid at .
8Ibid at [30-33].
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