PPSR Registrations: ABN or ACN – why don’t we have both?

Business Law: 25 March 2024

Author: Sam Merrylees & Isabella Cesta - Our People

Assessing the validity of PPSR registrations is an emerging issue in the insolvency space. Usually, the question to be determined concerns the financing statement information relating to a grantor – the one providing the security to another.

In fact, a few years ago we published an article dealing with this scenario.

A recent decision of Justice Shariff of the Federal Court of Australia in the case of Amal Trustees Pty Ltd as trustee for the Longreach Direct Lending Fund, in the matter of Top Shelf International Holdings Ltd [2023] FCA 1519 (Amal Trustees) has dealt with the less common scenario of issues relating to the secured party’s financing statement information, and provided guidance for insolvency practitioners in two key issues:

1. where a party to a security agreement involves a trust and a corporate trustee, which identifier(s) should be used? and
2. when will the Court extend the time for a secured party to register (or amend) their security interest on the PPSR?

Background

Amal Trustees concerned numerous security interests registered on the Personal Property Security Register (PPSR). Relevantly:

• The grantor was a group of companies operating a business primarily in the liquor industry.
• The secured party was a trust fund with a corporate trustee.
• In 2018 and 2020, the secured party loaned money to the grantor (Loans) and relatedly, the grantor provided security over “all present and after-acquired property” of the entities within its group of companies, pursuant to general securities deeds (GSAs).
• Following the execution of the Loans and the GSAs, the secured party lodged numerous registrations on the PPSR (PPSR Registrations). The financing statement for each PPSR Registration listed only the ACN of the corporate trustee of the secured party, and failed to include the ABN of the trust itself.
• The secured party later became concerned with the efficacy of its PPSR Registrations and applied to the Court (on an ex parte basis) pursuant to section 588FM of the Corporations Act 2001 (Cth) (Act) to fix a later time for the registration of their security interests on the PPSR.

ABN, ACN, or both?

The first issue the Court considered was whether the existing PPSR Registrations were defective. The Court found they were because the ABN of the trust was not included in the financing statement.

His Honour explained at [17] of his judgment that ‘this comes about because of the following’:

1. s 153 of the Personal Property Securities Act 2009 (Cth) (PPSA) provides that a financing statement with respect to a security interest must, in relation to a secured party, record the details prescribed by the regulations;
2. ss 164 and 165 of the PPSA deal with circumstances in which a registration may be ineffective;
3. specifically, section 164(1)(b) of the PPSA provides that a registration is ineffective where there is a defect mentioned in section 165;
4. in turn, section 165(d) of the PPSA provides that a defect exists where the registration does not record the data prescribed by the regulations;
5. the precise and specific details of a secured party or grantor that need to be included in the financing statement are in part set out in Schedule 1 of the Personal Property Securities Regulations 2010 (Cth) (Schedule 1);
6. relevantly, reg 1.3 of Schedule 1 applies to specify the details that must be included where the secured party is a body corporate, including the ACN of that body corporate;
7. in addition, reg 1.5 of Schedule 1 provides for further details that must be specified where the secured party is a body corporate that is a trustee of a trust that has an ABN in which case the ABN of the trust must also be specified.

Counsel for the secured party submitted to the Court that ‘by operation of reg 1.5 of Schedule 1, as the [secured party] is a trust that in this case has an ABN, the detail of the [secured party’s] ABN was required to be included in the financing statements in respect of the [PPSR Registrations] … the absence of the specification of the ABN of the [secured party] meant that, by operation of ss 164(1)(b) and 165(d) of the PPSA, the [PPSR Registrations] were defective’.

Much like the young child in the Old El Paso taco advertisement, Shariff J concluded “porque no los dos?” (why don’t we have both?”) … or more accurately he stated at [19]:

Having examined the provisions of ss 153, 164 and 165 of the PPSA and regs 1.3 and 1.5 of Schedule 1, I agree with the contentions advanced by [counsel for the secured party]. The combination of regs 1.3 and 1.5 of Schedule 1 required the financing statement to include specification of both the ACN of [the corporate trustee] as the trustee and the ABN of the [trust fund] as it was a trust that had an ABN.

In short, when registering a security interest on the PPSR and both a trust (with an ABN) and a corporate trustee (with an ACN) are involved, be sure to include both!

Remedying a defective registration – how long do I have?

Given the PPSR Registrations were defective, the Court was required to consider the secured party’s application pursuant to section 588FM of the Act for an extension of time for it to register its security interests. The Court granted the extension.

The reason for the secured party’s application lied in section 588FL of the Act, which provides that a “PPSA security interest” vests in the grantor if the grantor is placed into external administration and the interest has not been registered under the PPSR within specified times. Practically, the effect of this is two-fold:

1. the secured creditor loses the benefit of its security over the property in question; and
2. the property vests in the grantor company (i.e. the liquidator or administrator) for the benefit of creditors generally.

An order under section 588FM is a discretionary matter for the Court, and can be made on any one of the following three grounds:

1. the failure to register the collateral earlier was accidental; or
2. the failure to register was not of such a nature to prejudice the position of creditors or shareholders; or
3. it is just and equitable to do so.

In making orders pursuant to section 588FM, in effect giving the secured party a “second bite of the cherry”, Justice Shariff did so on the basis that:

• when the PPSR Registrations were made, ‘there was inadvertence in the sense that no one turned their mind to whether the [trust fund] had an ABN and whether that needed to be specified’.
• there was no prejudice to the position of creditors or shareholders, and there was evidence that the grantor was aware that the security interest was granted for the benefit of both the corporate trustee and the trust.
• albeit defective, the secured party’s interests were still registered on the PPSR, and ‘there was a public record on the register that identified that at least [the corporate trustee] held an interest by way of a security over [the collateral]’. As such, creditors dealing with the grantor ‘would have been aware of this fact if they had examined the public register’, and ‘members of the public had the opportunity to deal with the [grantor] armed with the knowledge of the existence of those securities’.

The takeaway from this aspect of Amal Trustees is that whilst it is best practice to register a security interest on the PPSR within 20 days of the security agreement, or more than six months before an insolvency event involving the grantor, the time to register (and perfect) a security interest on the PPSR can be extended in certain circumstances.