LEGAL UPDATE: PPSA BULLETIN
12 June 2017 by Ray Christensen
How Not To Lose $25 Million
Registering a PMSI against a customer’s ABN instead of ACN resulted in a loss of assets worth $25 million
If you sell goods to customers on retention of title terms, you must register a Purchase Money Security Interest (PMSI) on the Personal Property Securities Register (PPS Register) in relation to those goods before supplying them or risk losing ownership of the goods if they are on-sold or your customer is made bankrupt or put into administration or liquidation.
Similarly, if you are regularly engaged in the business of leasing goods and you lease out an asset for:
1. a term of more than two years; or
2. a term of less than two years that can be renewed or extended at the option of either party, and the total of the entire term including renewals/extensions will exceed two years; or
3. a term of less than two years, but then you leave it in the customer's possession for over two years,
you have what is called a “PPS Lease”, which, like retention of title, must be registered, otherwise if they are on-sold or the customer becomes bankrupt or is put into administration or liquidation, you will lose ownership of those goods.
The registration must be done properly. If the grantor is a person, you must register by reference to the person’s name and date of birth exactly as they appear on the person’s driver’s licence. If the grantor is a company, it must be done by reference to its ACN, not its ABN. The drastic consequences of failing to do this recently came to light in In the matter of OneSteel Manufacturing Pty Limited (administrators appointed) [2017] NSWSC 21.
On 1 May 2015, OneSteel commenced a 6 year lease of a Striker crushing and screening plant (Crusher) from Alleasing. The employee at Alleasing registered the PMSI by reference to OneSteel’s ABN (11 digits), instead of its ACN (9 digits).
The effect of that was that if someone performed a PPS Register search of OneSteel only by its ACN (as you are entitled to do), they would not have seen Alleasing’s registration.
OneSteel, a subsidiary of Arrium, subsequently went into administration.
The Supreme Court of New South Wales found that Alleasing’s registration was invalid because it was not done using the company’s ACN as required by s.165(b), Personal Property Securities Act and reg. 1.3 Item 3, Personal Property Securities Regulations.
As a result, Alleasing’s $25 million Crusher became the property of OneSteel.
PPS Lease definition changed to 2 years for leases after 20 May 2017
On 20 May 2017, the PPS Act was amended so that, instead of it capturing leases of more than one year duration, it instead captures leases of more than two years duration. Also, the Act no longer captures leases with no end date.
This amendment will significantly decrease the number of leases that need to be registered under the Act.
However, this only applies to leases entered into on or after 20 May 2017. If you have a lease of between one and two years, or with no specified end date, that was entered into before 20 May 2017, it still needs to be registered.
The requirement that the lessor be regularly engaged in the business of leasing out goods before the obligation to register the lease arises remains unchanged.
What if my customer might be the trustee of the trust?
Registrations over trusts need to be by reference to the trust's ABN, not the company’s ABN or ACN. Note that the trust will have an ABN that is different from the company’s ABN.
If it is at all possible that the company you are dealing with may be the trustee of a trust, ask your contact at the company and find out as soon as possible. We recommend any security that needs to be registered over a trust be registered against both the company’s ACN and the trust’s ABN.
However, there are tight time frames (some as short as 20 business days after signing a document, and some being prior to supply of goods) within which securities must be registered on the PPS Register. If you need to register a security over a trust, but are concerned that the time limit for registration may have passed, you should still register the security in order to protect your interests, but you may also need to seek a court order to extend the time limit for registering the security so that you receive all of the protections that registration gives .
If you think there is a possibility you may be in this situation, we recommend you obtain legal advice.
Take away points:
1. If you are selling goods on retention of title terms, or hiring them out for over two years, register your interest on the PPS Register BEFORE delivering the goods.
2. If the customer is a company, register by reference to the company’s ACN. If the customer is a trustee of a trust, also register by reference to the trust’s ABN.
3. If, prior to 20 May 2017, you leased out goods for more than one year, or for an indeterminate period of time, make sure the lease was registered, register it now if you have not already done so, and take legal advice on whether you should obtain a court order extending the time limit for registration.
4. If in doubt, obtain legal advice.
Please contact our Ray Christensen if you have any questions.
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