How to register your client’s security interest when it was granted by a corporate trustee
A registration on the Personal Property Securities Register (PPSR) is not intended to provide comprehensive details regarding the terms of the security interest (a.k.a. “charge”) held in collateral (a.k.a. “property”). Rather, it is intended to give notice to third parties of the existence of a security interest.
However,section 153 of the Personal Property Securities Act 2009(the Act) requires that certain data must be recorded on the PPSR for the creation of a valid registration. This includes data regarding the secured party, the grantor, address for notices, the collateral and any proceeds, the expiry of the registration, any subordination of the security interest, whether the security is a personal money security interest (PMSI), and any other matter prescribed by the regulations.
Problems have arisen in respect of the application of section 153, where the grantor is a corporate trustee acting on behalf of a trust.
Section 153 refers registrants to Item 1.5 of Schedule 1 of the Personal Property Securities Regulations 2010(the Regulations) which dictates what data is required to be entered on the PPSR where a security interest has been granted by a corporate trustee in the property of the trust.
In these circumstances, if the trust has an ABN (which is not always the case), registration must be made over the trust’s ABN, rather than the ABN of the corporate trustee. In the event that the trust does not have an ABN, registration can then be made over the ACN of the corporate trustee. Failure to comply with this regulation may result in the registration being ineffective!
Many secured parties have been led into error by this regulation. It is the corporate trustee which will execute the security agreement and is considered to be the grantor, so it is natural for registrants to assume that it is the ACN of the corporate trustee that should be recorded on the PPS Register.This assumption does not hold true under the Act. If the solicitor drawing up the security agreement is alert to the law, they will make it clear that the grantor is a corporate trustee and note details of the ABN of the trust.
In light of this regulation, care should also be taken when searching the PPS register to ensure that a search is completed against the correct entity (as a search on the ACN of the corporate trustee would in this situation not reveal a valid registration created against the trust’s ABN).
This regulation has also caused uncertainty for registrants and searchers in situations where the trust does not have an ABN but subsequently obtains one after registration, or where there is a change in the corporate trustee.On the current authorities the position is uncertain and it may be that the registration becomes ineffective and the secured party may, as a consequence,loose their priority to the trust property. Again, particular wording within the security agreement can help.
The position is somewhat different where the mistake in a registration concerns the ABN or ACN of the secured party, rather than the grantor. In Future Revelation Ltd v Medica Radiology & Nuclear Medicine Pty Ltd  NSWSC 1741 the NSW Supreme Court followed the approach taken by Courts in Canada and found that the incorrect use of an ABN to describe the secured party (where an ACN should have been used) did not invalidate the registration.
For an Australian PPS registration to be invalid it must be so seriously misleading that a search of the register would not reveal that the registration had been created against the relevant property. Where a secured party is incorrectly described on the PPSR a search of the register by reference to the property or the grantor will still disclose the registration. As a result, the defect in the description of the secured party is not misleading at all.
These issues are amongst the many issues considered by the Attorney-General in their recent review of the Act. If you are unsure about the validity of a registration you or your client created please seek legal advice. There are options available that may allow you to amend or correct the register. An application to the Registrar may be required. Please contact us should you wish to know more.