In our trade, we recognise that in order to offer tailored guidance on what steps to take in the event of financial distress, it is really important to know as much about the entity we are assisting and its underlying structures.
Accordingly, we conduct searches of public registers, including the Personal Property Securities Register, or PPSR for short, to work out what sort of structure we are dealing with and who the stakeholders are. It’s all about informed decisions when we meet with people.
Since its inception in 2012, the PPSR has been the bane of businesses who rent and lease goods, who sell goods on consignment or retention of title terms, and for lenders who take security over assets of a borrower.
There were some well publicised and very expensive lessons learned in the early days of the register and some landmark cases set the course for how the then new legislation was to be interpreted.
The use of the PPSR is certainly getting better, but from our perspective, we are still hearing of erroneous registrations that can be deemed defective and therefore ineffective against a Liquidator in the event of insolvency. And that can be disastrous for lenders, lessees and suppliers of inventory.
What I will discuss in this article is the importance for lenders, lessees and suppliers, of registering a security interest against the correct party, otherwise known as a ‘grantor’ in PPSR terms.
The Personal Property Securities Act 2009 (Cth) (PPSA) is very prescriptive on how to register a security interest, or more relevantly to this article, who to register your security interest against.
The grantor is the individual or organisation who owns or has an interest in the personal property to which the security interest is attached.
Simple right? Not really. What about the instance where an individual or organisation acts as trustee of a trust? Or a partnership exists?
To assist our accounting and bookkeeping partners out there who have clients with an exposure to the PPSR, see below a summary of the grantor registration requirements:
Individual grantor details
The individual’s surname, given names and date of birth must be recorded correctly.
The identifying information should be sourced from the following documents, in order of priority:
- current data known by the secured party because of the operation of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) (principally financial institutions)
- the current driver’s licence issued by an Australian state or territory
- proof of age card issued by an Australian state or territory
- Australian passport
- Australian visa
- passport from country grantor usually resides, or
- details on birth certificate
For lenders, lessees and suppliers, it is worthwhile checking in with clients periodically to ensure that the registration details are correct.
Take these circumstances, for example, where an individual’s birth certificate is used as the source document for security interest registration data, and then the grantor obtains an Australian driver’s license (a higher ranked source document) than includes a change of name. This would render the original registration defective.
These requirements extend to a sole trader who holds an ABN for a business they carry on for which the security interest is granted or held. However do not include an individual who is a partner in a partnership or a trustee of a trust if the partnership or trust has an ABN for the enterprise for which the security interest is granted or held.
Organisation grantor details
Different rules apply to corporations, partnerships, trustees of a trust or a body politic.
See the summary points below sourced from the ppsr.com.au website in italics, and our comments where applicable:
Body corporate identifiers
If the body corporate is the responsible entity of a registered scheme that has an ARSN, use the ARSN. ARSNs are issued to Managed Investment Schemes. If that does not apply and the body corporate has an ACN, use the ACN.
If the body corporate has no ACN but has an ARBN, use the ARBN. ARBNs are issued to registerable Australian bodies and foreign companies.
If none of these options apply, use the name of the body (sourced from the body corporate’s constitution or equivalent document). To do this you will need to select the entity type “other” and then the organisation name.
If the grantor is a partner in a partnership carrying on an enterprise to which an ABN has been allocated, the relevant identifier is the ABN. To do this you will need to select the entity type “partnership” and then the ABN.
If the partnership has not been allocated an ABN then the registration should be made against the details of the partners, as individuals.
If an individual partner grants a security interest over the partner’s net interest in a partnership then the individual identifiers apply.
If the trustee has an ARSN register against the ARSN.
If the trustee is a body corporate without an ARSN and the trust has an ABN register against the ABN. To do this you will need to select the entity type “trust” and then the ABN.
If the trustee is a body corporate without an ARSN and the trust does not have an ABN register against the body corporate’s ACN.
HLB Insolvency comment: this is the one that we see registered incorrectly the most. A fair percentage of corporate insolvency matters we deal with relate to a corporation that acts as a trustee of a discretionary trust – a common structure for a family operated SME.
As you will have read above, a security interest should be registered against the ABN of the trust, not the ACN of the corporate trustee. This requires thorough due diligence in the early stages of a leasing or lending arrangement, so the PPSR registration is executed correctly.
Body politic identifiers
If the body politic is carrying on an enterprise to which an ABN has been allocated, the relevant identifier is the ABN. To do this you will need to select the entity type “body politic” and then the ABN.
If the body politic or has an interest in collateral, other than in the course of, or for, an enterprise that has been allocated an ABN then register against the name of body politic, in accordance with the constitution of body politic. To do this you will need to select the entity type “other” and then the organisation name.
The PPSR is fraught with dangers and it is critical that security interests are registered correctly, otherwise your clients may get some unhappy news from a Liquidator if one is appointed.
What this article highlights is, registering a security interest may seem simple at face value, but the devil is in the detail. So take the PPSR seriously and ensure that your registrations are effective and enforceable.
About the author
Greg Quin is a Director at HLB Mann Judd Insolvency WA and has been with the team for nearly 10 years. Greg oversees the daily operations of the many insolvency appointments managed by the team and looks after the operations of the practice.