Potential PPSA Loophole Firmly Closed

We have already discussed the case of Alleasing v OneSteel Manufacturing where Alleasing’s registration on the PPSR was deemed ineffective because it was lodged against OneSteel’s ABN instead of its ACN.  You can read more about this here.

Well, last month we heard of a similar case where HP Financial Services fronted up to the NSW Supreme Court to argue that their registration against Production Printing (Aust) P/L’s ABN instead of its ACN should be deemed effective.  Although HPFS trotted out most of the same arguments that were raised in the Alleasing/OneSteel case, they did present an additional argument that I understand has been raised a few times with Insolvency Practitioners but had not previously made it to court. 

The new argument revolved around section 166 of the PPSA where, in a fairly convoluted manner, it effectively says that:

If there is a defect in a registration, the registration will be temporarily unaffected by the defect if the defect did not arise only because of an irregularity, omission or error in a registration.

“Temporarily” in this context could mean as long as 5 years after the defect occurred or as little as 5 business days after the defect was drawn to the secured party’s attention.

In short, HPFS’s argument was pretty much, yes, there was a defect but, because of s166, it doesn’t matter.

While s166 was intended to provide some protection to secured parties who had an initially effective registration rendered ineffective by events beyond their control, its application in HPFS’s context would end up creating the ludicrous situation where there might be no repercussions arising from serious mistakes in registrations and the transparency the PPSR was intended to provide would be lost.

The key in this case relied upon HPFS being able to convince the court that the defect at hand did not only arise because of an error in registration. 

HPFS argued that, in addition to the ABN/ACN error in registration, the defect was also the result of the registration not being visible in the results of a properly conducted search of the PPSR.  Thus not only was the registration defective because of s153 of the PPSA but also because of s165.

Personally, this sounds a little like trying to argue that it wasn’t just the bullet through a murder victim’s head that killed them but also the fact that their heart then stopped beating!

Fortunately, Justice Black in his decision on 2^nd May was not swayed by HPFS’s central argument and supported the intended interpretation of s166.  The rest of HPFS’s case, which was largely dependent on achieving the ‘temporarily unaffected’ status s166 might have afforded, collapsed like a row of dominoes.

In summary, this is another court judgement to remind us that, yes, the PPSA does operate as we thought it did and, no, there isn’t any easy remedy when you don’t get your registrations right.

Details of the judgement (that I've probably simplified out of all recognition) can be found here:

https://www.caselaw.nsw.gov.au/decision/5906e0eee4b0e71e17f592cc