Court confirms importance of ABN vs ACN distinction on PPSR registrations

Insights3 Feb 2017

On The 31 of January 2017, the NSW Supreme Court confirmed that an administrative error made by Alleasing in its PPSR registrations would result in the loss of a $23m ore crusher.

On The 31 of January 2017, the NSW Supreme Court confirmed that an administrative error made by Alleasing in its PPSR registrations would result in the loss of a $23m ore crusher. The error was simple: Alleasing had registered over its customer’s ABN rather than its ACN.

While many businesses now understand the importance of registering their rights on the PPSR, errors remain common. Some of those errors can be fatal and result in the loss of assets.

When should ABN or ACN be used?

The Personal Property Securities Act 2009 (PPSA) and its associated Regulations set out the key details to be used in PPSR registrations, including the proper method of describing the grantor (ie. the party over whom the registration is being lodged – often the customer, hirer, guarantor, etc).

Whether the ABN or ACN should be used depends on the detail of the underlying security agreement (eg hire agreement, supply agreement, finance agreement, trading terms, etc):

If the grantor entered the agreement as a trustee of a trust which holds an ABN – the registration should be recorded over the ABN of the trust.
If the grantor has an ACN and entered the agreement in its corporate capacity (ie. not as a trustee) – the registration should be recorded over the ACN of the company.

(Nb: These rules apply to grantors which are companies. Alternative rules apply to schemes, body corporates with Australian Registered Business Numbers (ARBN), partnerships, bodies politic and individuals.)

It is essential that the correct identifier be used in registrations. Using the wrong grantor identifier will constitute both a statutory defect and a seriously misleading defect and will render the registration ineffective. Any assets or other rights claimed under that registration can be lost.

The $23m administrative error and its effect

The Alleasing case arose in the Arrium administration. Alleasing had entered a master lease agreement with OneSteel Manufacturing (OneSteel) in October 2014, under which Alleasing leased to OneSteel an ore crushing and screening plant Alleasing also leased associated spare partsto OneSteel. To facilitate this lease, Alleasing had paid approximately $23m for the design, supply and installation of the crusher.

OneSteel entered the lease agreements in its corporate capacity, not as a trustee of a trust.

Alleasing registered its rights in the crusher and parts on the PPSR. However, the Alleasing employee responsible for the registration did not understand the importance of using the correct ABN vs ACN identifier. The employee used the ABN of OneSteel, rather than its ACN.

On 7 April 2016, OneSteel appointed administrators. Upon being informed by the administrators that the registrations were defective and ineffective, Alleasing lodged new registrations and amended the original registrations in an attempt to rectify the error.

The Court held that Alleasing had lost its rights in the crusher and spare parts, notwithstanding their subsequent attempts to fix the error. The Court confirmed that the registrations which determined Alleasing’s rights were those in effect as at the date of the administrators’ appointment. Those were the original registrations, without amendment. As those registrations were defective and ineffective, Alleasing’s rights in the crusher and spare parts vested in the administrators upon their appointment, such that its rights were lost.

No extension of time was available to validate the post-appointment registrations and amendments.

This case confirms the position set out in the PPSA. While Alleasing has indicated an intent to appeal, whether it does so, and the grounds of such appeal, remain to be seen.

The lesson

Whether to describe an organisation by its ABN or ACN may appear to be a technicality, however, it is an important technicality. It is essential that creditors, lessors, and other secured parties who are registering rights on the PPSR ensure that the correct identifier is used, (and that the other statutory requirements are met). Failure to do so can result in creditors losing their rights.