Registration failure sees $23 million equipment loss
Hilary Hunt
It is common in the construction industry for contractors on a project
to lease equipment from a third party. If the lessor third party fails to
register its interest in the leased equipment in strict compliance with
the Personal Property Securities Act 2009 (PPSA), it runs the risk of
losing its property. An example of this is seen in the recent case of In the
matter of OneSteel Manufacturing Pty Ltd (administrators appointed)
[2017] NSWSC 21.
The plaintiff, Alleasing Pty Ltd (Alleasing), leased crushing and screening
equipment and spare parts to the defendant, OneSteel Manufacturing
Pty Ltd (OneSteel). The lease was a ‘PPS Lease’ for the purposes of the
PPSA and Alleasing sought to register its interest in the leased crusher
and spare parts by registering a fi nancing statement on the Personal
Property Securities Register (PPSR).
Although Alleasing was the owner of the crushing and screening
equipment, as soon as it entered into a PPS Lease, its rights as owner
were treated as if they were the rights of a secured party. Therefore, if
Alleasing failed to register that security interest correctly, its rights as
owner could be defeated by the holder of a valid registered security
interest. This is a major change to the previous rights owners enjoyed
under the ‘nemo dat’ principle.
Under the PPSA, when completing the fi nancing statement, where
the grantor is a body corporate, the secured party (Alleasing) must
state the ACN of the grantor (OneSteel) as the prescribed method of
identifi cation. The PPSA is an ‘exact match’ system and does not allow
any deviation from the prescribed rules for identifying parties on the
PPSR. In completing the registration, an employee of Alleasing included
the ABN of OneSteel instead of the ACN (which was a difference of only
two digits).
Administrators were later appointed to OneSteel and informed Alleasing
that they considered its registrations to be defective and therefore
ineffective – the result being that Alleasing’s interest in the crusher
and spare parts is lost. This happens because the PPSA states that
a security interest that is not registered correctly ‘vests’ in the grantor
(OneSteel). Therefore the equipment is essentially returned to the pool
of assets of OneSteel, free of the rights of Alleasing. That equipment
is then available for distribution to the holders of correctly registered
security interests.
In an attempt to validly perfect its interest, Alleasing fi rst lodged new
fi nancing statements in respect of the crusher and the spare parts. A
few days later, it amended its original registrations to include the ACN
of OneSteel.The Court considered the following four questions:- Was there a defect in the original registrations?
- Whether the defect causes the original registrations to be ineffective.
- Whether the vesting of Alleasing’s interest in the crusher and the
spare parts in OneSteel was unconstitutional on the basis it was an
acquisition of property other than on ‘just terms’. - Whether Alleasing retained its interest in the equipment based on a
perfected PPSA interest.
Alleasing argued that by making the fi rst registration with reference to
the ABN, the nine digit ACN had in fact been included on the PPSR
(within the ABN).The Court concluded that there was a defect in the original registrations
because Alleasing did not identify OneSteel by using the ACN in the
fi nancing statements. This defect was seriously misleading because any
third party who conducted a search of the PPSR against the ACN of
OneSteel would not have discovered the original registrations. Such a
defect resulted in the original registrations being ineffective.The Court held that the vesting of the equipment back to OneSteel was
not unconstitutional because it did not amount to an ‘acquisition’ of
property, being the conduct that is disallowed by the constitution. In any
event, compulsory acquisition by a party other than the Commonwealth
generally falls outside of the scope of the constitutional bar.Finally, the Court found that relief was not available under the
Corporations Act 2001. The relevant provisions could only have applied
if Alleasing’s security interest had been perfected by the ‘critical time’,
which is defi ned as the day on which administration began.As a result of omitting the ACN of OneSteel in the original registrations,
Alleasing’s title to the crusher and the spare parts vested in OneSteel at
the point immediately before OneSteel went into administration.Lessors (and other with security interests) should take note of this case
and ensure registrations are completed correctly.On a related note, the PPS Amendment (PPS Leases) Bill 2017 has
recently been put before Parliament. This Bill proposes amending the
defi nition of a PPS Lease (and therefore whether the lease confers a
registrable interest) by changing the minimum duration of the leases that
are covered by the PPSA from the existing one year to two years. In
other words, if this amendment is passed, leases of personal property of
less than two years’ duration will not require registration on the PPSR.If you have any queries or concerns as to whether you may need to
register a security interest on the PPSR, or if you have any questions
more generally in relation to the operations of the PPSA contact Jackson
McDonald banking and fi nance partner Hilary Hunt (9426 6623,
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