Not registering on the PPSR against an ACN CAN cause headaches

Yoni Baker, Lawyer, Melbourne

In the recent case of IBM Global Financing Australia v Applied Business Technology Pty Ltd [2018] NSWSC 1984, corrupted internal procedures led to a number of registration errors on the Personal Property Securities Register (PPSR). Whilst relief was ultimately granted, the case is useful for highlighting the extensive time, effort and cost involved in rectifying even basic errors on the PPSR.

The errors

IBM Global Financing Australia Limited (IBM) is in the business of leasing and financing computer hardware and software. The case related to a number of such security transactions between 2012 and 2017 which were subject to the Personal Property Securities Act 2009 (Cth) (PPSA). IBM took steps to register purchase money security interests (PMSIs) on the PPSR arising out of these transactions.

In December 2017, IBM discovered that there were errors in its internal procedures for registering security interests. For PPSR registrations between July 2012 and December 2017:

• IBM (as the secured party) used its ABN, rather than its ACN, as part of the description of itself – the Personal Property Securities Regulations require the use of the secured party’s ACN; and
• in respect of the description of the grantors, in some instances IBM registered the security interests against the grantor’s ABN – the Personal Property Securities Regulations require the use of the grantor’s ACN.

This had the effect of potentially invalidating those registrations.

The solution

IBM lodged fresh registrations on the PPSR to correct each of these mistakes but still faced two issues:

• Under section 588FL of the Corporations Act 2001 (Cth) (Act), a secured creditor loses the benefit of a security interest registered less than six months before the grantor’s administration or liquidation unless the registration takes place within twenty days of the creation of the security interest. IBM applied under section 588FM of the Act to extend this period to ensure its fresh registrations still fell within this timeframe.
• Under section 62 of the PPSA, a PMSI takes priority over any other perfected security if registered within fifteen days of the grantor taking possession of the property. IBM applied under section 293 of the PPSA to extend this period to ensure its fresh registrations maintained that priority.

Extension under section 588FM of the Act

Parker J found the cause of the errors to be administrative in nature, satisfying the section 588FM requirement that for relief to be granted the failure to register earlier must have been “accidental or due to inadvertence or some other sufficient cause”.

Extension under section 293 of the PPSA

A court may make an order extending the time for registration of a PMSI under section 293 of the PPSA if it is satisfied that it is “just and equitable” to do so. Section 293(3) of the PPSA sets out three factors that the Court is required to take into account:

(a) whether the need to extend the period arises as a result of an accident, inadvertence or some other sufficient cause

As with the section 588FM test, given that the errors were found to be administrative in nature, this limb was satisfied.

(b) whether extending the period would prejudice the position of any other secured parties or other creditors

Parker J reiterated that relevant prejudice is not the loss of a windfall benefit resulting from the invalidity of the PMSI but rather the prejudice arising from failure to register it properly in time. His Honour considered the potential prejudice on the holders of the following types of security interests:

• prior all present and after-acquired property (AllPAP) interests – no prejudice as there is no expectation the security interest will apply to a later PMSI;
• subsequent AllPAP interests – possible prejudice, but unlikely as it is common for financiers to conduct a search against the grantor’s name, ACN and ABN. Accordingly, in this case it was considered unlikely that IBM’s initial registrations would have been disregarded;
• non-AllPAP interests – Parker J raised a concern that holders of fixed securities could have overlapping security with IBM which would require the secured parties to evaluate the extent to which their securities could be affected. However, to alleviate these concerns, IBM wrote to such parties seeking notice of their interests so that it could perform that assessment itself. Accordingly, Parker J considered that the secured parties had a fair opportunity to contest the application.

(c) whether any person has acted, or not acted, in reliance on the period having ended

Parker J noted the similarity to Re Accolade Wines Australia Ltd [2016] NSWSC 1023 (Accolade) where financiers also incorrectly used the grantor’s ABN rather than the ACN.  In Accolade it was found that the customary market practice amongst financiers is to conduct a triple search by reference to the grantor’s ACN, ABN and company name.  On that basis, Parker J considered it unlikely that any reliance existed.

Accordingly, the Court was satisfied that it could use its discretion to grant an extension.

Key lessons

Whilst IBM was ultimately successful in having the period for registrations extended, this case is useful for highlighting the time and costs involved in trying to rectify registration errors.

Since IBM’s procedures had been corrupted for a period of more than five years, hundreds of its registrations were affected. Practically, many of these were no longer of consequence but IBM still had to review all of its records and make a case by case assessment to identify which transactions were worth correcting. IBM identified over 400 transactions of potential significance, and fresh registrations were lodged for approximately 280 of those.

In addition to its own records, to determine whether a fresh registration was commercially necessary, IBM also had to review approximately 3,000 potentially conflicting registrations in respect of securities granted by their customers.

Ultimately it took close to a full year for IBM to finally resolve these issues and achieve certainty over their registrations.

Whilst a mistake on the PPSR may not always be dire, the risk associated together with the time and effort taken to fix it can still be draining.

If you have any concerns regarding your internal PPSR procedures or security interest registrations, we recommend seeking legal advice to address those concerns sooner rather than later.