Steeling $23,000,000: OneSteel Administrators’ Windfall
By Jack Newton, Lawyer, MST Lawyers
Yet another business has suffered the consequences of the Personal Property Securities Register (PPSR), resulting in the loss of equipment purchased for more than $23,000,000.
Alleasing conducts an asset finance business and leased certain goods to OneSteel Manufacturing (OneSteel). Unlike many businesses who do not register their security interests on the PPSR, Alleasing did register its security interest against OneSteel.
Unfortunately for Alleasing, the staff member who registered the security interest used OneSteel’s Australian Business Number (or ABN) instead of OneSteel’s Australian Company Number (or ACN).
An ACN is an identifying number for a company. An ABN is an identifying number for a business (which may or may not be carried on by a company). For example, a sole trader may have an ABN, but a company which carries on more than one business may have more than one ABN. Therefore, the only way to properly identify a company is through its ACN.
Alleasing’s staff member was not aware of the difference between an ACN and ABN, and in October 2014 registered the security interests using OneSteel’s ABN.
In April 2016, OneSteel appointed administrators. That same month, the administrators wrote to Alleasing to advise that, because the registration used OneSteel’s ABN rather than ACN, the registration was defective. Given that the registration was not valid, the administrators claimed that Alleasing’s interests in the equipment would pass onto OneSteel.
If that position was correct, the administrators would be entitled to sell the equipment and retain the proceeds from the sale because an unregistered security interest will vest in the grantor/debtor company upon the appointment of an administrator or liquidator.
Shortly after this (though after the appointment of the administrators), Alleasing sought to re-register its security interests and did so using OneSteel’s ACN.
Alleasing applied to the New South Wales Supreme Court seeking a declaration that the security interest was valid and effective.
On 31 January 2017, the Court found:
- a registration against a company (that is not a trustee or partnership) must be registered against the company’s ACN;
- Alleasing’s registration was defective because it did not include the ACN;
- the PPSR requires that a registered security interest be searchable on the register; and
- Alleasing’s register was not searchable because if a search was conducted on OneSteel’s ACN (remembering that all registrations against OneSteel were required to be registered against the ACN), Alleasing’s registration would not appear in the search results.
The PPSR legislation allows a court to extend the time required to register a security interest. In this case, Alleasing ran an alternative argument that (if the Court did not agree that the registrations were effective) the Court should extend the time available for Alleasing to register to the date that Alleasing re-registered its interest (that was after the appointment of administrators).
The Court did not agree that the conditions required to permit the Court to make such an order were satisfied in this case.
Businesses that supply goods through hire-purchase, leases or even on credit must ensure their registrations are effective. Some key points from the OneSteel case are:
- (going back a step) terms and conditions and supply agreements must be drafted with proper and effective PPSR clauses to give businesses the necessary rights;
- security interests must be registered to the correct entity;
- defective registrations are the same as not having registered in the first place;
- unregistered security interests vest in the debtor/grantor company upon the appointment of administrators; and
- although there is a mechanism available to extend the time of a registration, it has rarely succeeded and can be an expensive process.
If your business has an unregistered security interest all assets covered by that interest will be lost if an administrator or liquidator is appointed to the debtor/grantor.