How an ABN clerical error cost a company $23 million
The Personal Property Securities Act 2009 (Cth) (PPSA) provides a national framework for registering interests in personal property. These interests are recorded on a central register known as the Personal Property Securities Register (PPSR).
Registration on the PPSR is an integral step in securing, protecting and enforcing a financial interest in property. However, the requirements for registration are strict and the provisions of the PPSA can be unforgiving.
In the matter of OneSteel Manufacturing (administrators appointed)  NSWSC 21 shows how a two-digit mistake resulted in an eight-digit loss – the forfeiture by a leasing company of equipment to the tune of $23 million!
The case warns us that technical mistakes in the PPSR registration process can have exorbitant consequences.
Alleasing Pty Ltd hired mining equipment and machine parts valued at $23 million to OneSteel under two separate lease agreements. Alleasing’s respective security interests in the transactions were registered on the PPSR.
An objective of the PPSA is to enable an interested third party to identify a registered security interest held in property via a search of the PPSR. The PPSA prescribes the different data required to facilitate a search in different circumstances. For the registrations in question, the Australian Company Number (ACN) of the grantor (OneSteel) was the criteria required to identify it in the financing statement and registration process. Contrary to this, OneSteel’s Australian Business Number (ABN) was used in the description.
Alleasing subsequently went into administration and the administrators claimed the security interests were defective on the basis that:
- a search of the register ‘by reference only to the grantor’s details’ (as required by the PPSA) was incapable of disclosing the registration; and
- the default position under s 267 of the PPSA is that an ineffective security interest vests in the grantor immediately prior to its insolvency.
Alleasing tried to rectify the mistake by creating a further set of registrations, this time using the ACN. Its efforts failed however as the new registrations fell outside the permitted registration timeframes applicable for the security interests in question.
Alleasing’s application to the Court sought (amongst other things):
- a declaration that the security interests were validly perfected and that the equipment did not vest in OneSteel under s 267 of the PPSA; or alternatively
- orders under s 588 FM of the Corporations Act 2001 fixing the registration time as the date that the second registrations were made and, pursuant to s 293(1)(a) of the PPSA, extending the period for registration.
OneSteel asserted that Alleasing’s security interests were not perfected on or prior to the appointment of administrators and, consequently, vested in OneSteel immediately prior to the appointment.
Generally, a company’s ABN and ACN share 9 common digits. The ABN contains 9 (of 11) mutual digits, preceded by an additional 2 different numbers. Alleasing proposed that the original registrations using the ABN were effective as they contained 9 identical numbers to the ACN.
Whilst this was in fact the case, the Court rejected the proposition on the basis that the PPSA required specific identification data which could be used in a single search of the register. Using an ABN instead of an ACN would not produce the expected search result and therefore constituted a ‘seriously misleading defect’ pursuant to s 164(1)(a), and a technical defect pursuant to s165(b) of the PPSA.
The Court explained that a seriously misleading defect would occur in circumstances where an ‘…error would prevent a registration being disclosed by a properly formatted search in the relevant searchable field’ of the PPSR. The functionality of the register was created to return search results based on an exact match of the data entered. Using a grantor’s ABN instead of its ACN would not achieve this.
Alleasing’s second registrations to save its security interests were also ineffective. Section 588 FM of the Corporations Act is available in limited situations and only prior to a ‘critical time’, deemed in the circumstances as before the appointment of administrators and the vesting of the equipment in the grantor under s 267.
Finally, it was considered that orders for extensions of time for registration pursuant to s 293(1)(a) of the PPSA were limited to priority, and not perfection issues. Alleasing was unsuccessful and the Court concluded that ownership of the machinery vested in OneSteel.
Errors or omissions in the search criteria can circumvent the functionality of the PPSR. The Court will take a strict approach when determining matters concerning registration mistakes that could prevent a party from identifying the existence of a security interest.
The following points should be kept in mind when registering a security interest:
- A systematic and methodical approach to registration will assist in preventing mistakes and protecting the interests of the secured party.
- Creditors, lenders and other secured parties should review existing registrations to ensure that correct identification criteria have been used in compliance with the PPSA and regulations.
- Advice regarding fresh registrations or Court-ordered extensions of time is recommended if defective registrations are identified or if a company is in doubt.
- Companies should ensure that staff are appropriately trained in registering security interests on the PPSR and that processes are carefully documented.
Obtaining legal assistance with registrations could save potential disasters down the track.
Strict compliance with the stringent processes required under the PPSA is essential to effectively register a security interest – what seems like a simple oversight or ‘typo’ can have catastrophic financial consequences for your company.