Despite over 7 years having elapsed since the Personal Property Securities Act 2009 (PPSA/Act) came into effect, there remain quirks in the way the Act impacts on certain aspects of perfection and enforceability of personal property security interests in Australia.
As we know, it is paramount that, when registering a security interest on the Personal Property Securities Register (PPSR), the relevant security is registered against the correct party. A failure to correctly register, or otherwise perfect a security interest, may have devastating consequences for a secured party, and can often result in a security interest being rendered void. Consequently, the secured party may lose their rights in or as against the relevant collateral.
It is the common - and generally accurate - perception among insolvency professionals and advisors that a person who takes a security interest over the assets held by a corporate trustee in its trustee capacity, must register its security interest against the ABN of the trust which holds the beneficial entitlement to those assets. That is, of course, the rule that prevails where the trust in fact has an ABN (the existence of which is not always a given) by reason of the hierarchy of identifiers stipulated by section 153 of the Act and as set out in Schedule 1 part 1.5 of the Personal Property Securities Regulations 2010 (Regulations).
But what about when the trust does not have an ABN? If the trust does not have an ABN allocated to it, the hierarchy stipulates that the registration is to be made against the identifier applicable to the trustee itself - most commonly being the ACN of the corporate trustee.
The wording of the Regulations in this regard suggests that a security interest should only be registered against the ACN of a trustee company if the trust does not have an ABN. But by that wording, the Regulations do not prescribe that a security interest be registered over the ABN of the trustee company, in preference to the trustee company’s ACN simply because it is a trustee or has granted a security interest in that capacity. The situation can be more difficult where an ABN has been transferred between entities at various times, and how such transfer/s might correlate with the creation or perfection of security interests that have been profferred by a grantor.
The Explanatory Memorandum for the Act informs us that:
…where the trustee of a trust that is carrying on an enterprise to which an ABN has been allocated, the relevant identifier is the ABN. Otherwise, the trustee is to be identified using the individual identified table.”
In effect, this tells us that:
(a) where a trust has an ABN, a security interest is to be registered against that ABN;
(b) where the trust does not have an ABN, the security interest must be registered against the relevant identifier of the trustee; and
(c) where the security interest is registered against the trustee, and that trustee is a corporation, the hierarchy for registration against a corporation applies (in most cases this is the ACN).
While it may be (and often is) the case that a particular corporate trustee has always and only traded an enterprise in a trustee capacity, the subjective intention of the trustee’s existence is not relevant to the construction of the hierarchical rules under the PPSA and Regulations.
It is important here to note that an ABN may be allocated to either or both of a trustee or a trust (and for tax reasons, they often are), but simply because a corporate trustee has an ABN, it does not follow that the ABN is attached to the trust itself, with the result that a registration against same will not be valid in the event that the trust also has an ABN.
The distinction discussed above is perhaps uncommon, but nevertheless serves as a timely reminder for insolvency professionals to be aware of the - sometimes subtle - distinctions drawn by the registration rules set out in the PPSA, when considering and/or making determinations about the validity or enforceability of security interests over trust assets in insolvency.