Hire and Rental News - August 2019

INDUSTRY IN FOCUS Trusts, ABNs and the PPS Register – non-entities making mischief for secured parties By Oliver Shtein & Karen Wong T he recent case of In the matter of Psyche Holdings [2018] NSWSC 1254 shows the importance of not only ensuring registrations of security interests on the PPS Register are effective at the time of registration, but ensuring those registrations continue to remain effective, particularly where the grantor in question is a trust. The case demonstrates the pitfalls in the way the PPS Register has been designed to require trustee grantors to be identified by trust ABN, a marker which does not identify any legal person and may disappear (or arise) with potentially fatal consequences for a PPSA registration. Psyche Holdings case – Background In June 2013, Ridgeway Finance (Ridgeway) entered into a General Security Deed with Psyche Holdings (Psyche) in connection with the extension of credit from Ridgeway to Psyche. Ridgeway lodged a financing statement on the PPS Register in respect of its security interest, which referred to Psyche by its ACN. At the time of that registration, Psyche was acting as trustee of a trust (Trust), but the Trust had not yet been assigned an ABN. Accordingly, the registration against Psyche’s ACN was, in those circumstances, correct and appropriate to perfect its security interest. The Trust was subsequently assigned an ABN, the registration date of which was backdated for taxation purposes. The PPS Regulations require if a corporate entity is trading as trustee of a trust, the secured party must register its security interest by reference to the trust’s ABN, rather than the corporate trustee’s ACN. Under section 166 of the PPSA, where a registration is correct at the time of lodgement, but subsequently becomes incorrect, the secured party must amend the financing statement in respect of that registration within five business days of acquiring knowledge of the defect, failing which the registration becomes ineffective. It was not until some five years after the date of Ridgeway’s original registration, when a director of Ridgeway recognised the significance of the Trust’s ABN registration on the enforceability of the security interest, that Ridgeway took steps to lodge a new financing statement on the PPS Register, identifying the grantor by reference to the ABN of the Trust. Ridgeway also made an application to the court under section 588FM of the Corporations Act to fix a later time for the registration of its interest, on the basis of its failure to register its interest earlier was accidental or due to inadvertence. The Court was satisfied in this case, such inadvertence had been established and granted the extension. Implicit in the decision is the Court considered the registration to be defective. In this case the problem arose because a trust obtained an ABN and that changed the way Ridgeway needed to register against Psyche. But it seems a similar issue could arise when a trust has an ABN but it is cancelled. In each case the assumptions underlying a correct registration change. Should one always register against both the trustee ACN and trust ABN? There have been suggestions by commentators where the grantor is a corporate trustee of a trust, the secured party should, as a matter of practice, make registrations against both the ACN of the corporate trustee, and the ABN of the trust. It may even be prudent to include in the commercial terms between the parties, a requirement for the trust to apply for and obtain an ABN if it is eligible for one and does not have one, to guard against the kind of problem that arose in the Psyche Holdings case. The following benefits flow from making dual registrations: • The grantor customer may be dealing in dual capacities. This is commonly the case where for example a general ‘all assets’ bank-style security is taken, as those are virtually always expressed to be granted by the customer ‘in its own right and as trustee’; • There may be a change of circumstance (as in the Psyche Holdings case or a case where a trust ABN exists at the outset but is later cancelled) which could mean the registration starts to be invalid. The scheme of the PPSA is perfection by registration is judged at particular times. We can find nothing in the legislation that allows subsequent events to be disregarded just because the registration was correct at its outset and as noted above the Court in Psyche Holdings clearly saw the registration as having become defective; A secured party’s customer may start dealing in its own right in such a way the change or its PPSA implications are not immediately obvious to the secured party. For example, purchase orders start bearing the corporate ABN instead of the trust one; and • The ‘extra’ registration might also prevent other potentially wrongful dealings where the customer (eg: a company as trustee of an ABN trust) tries to sell an asset and the innocent buyer only searches the ACN. Because there is no ACN registration, the buyer proceeds where otherwise it might not have. However, the making of dual registrations also gives rise to some issues. Where the grantor is a company acting as trustee of a trust which has been assigned an ABN, the only registration that is strictly necessary is against the ABN of the trust. An additional registration against the trustee’s ACN is not required in order to make a registration effective. A second and arguably unjustified registration perhaps exposes the secured party to civil penalties under section 151(1) of the PPSA. Some may think that is a risk worth running. There “The case shows pitfalls in the way the PPS Register has been designed to require trustee grantors to be identified by trust ABN, a marker which does not identify any legal person and may disappear (or arise) with potentially fatal consequences for a PPSA registration.” P18 HIRE AND RENTAL NEWS AUGUST 2019