Should I register against the ACN or the Trust ABN?

My buyer has an ACN but also has a Trust ABN – should I register against the company or against the trust?

We would recommend both. 

One registration can be lodged against two different ‘grantors’, so there shouldn't be any additional expense.  However, at the very least, a registration should be lodged against the Trust ABN.

The below chart is a handy reference to identifying a grantor:

Grantor Type	Grantor Details Required
Sole Trader	Full Name (as per driver’s licence) and date of birth
Sole Trader acting as Trustee	Trust ABN (if the Trust does not have an ABN, as per ‘normal’ Sole Trader)
Partnership	ABN
Partnership acting as Trustee	Trust ABN (if the Trust does not have an ABN, as per ‘normal’ Partnership)
Partnership without an ABN	Full name and DOB of each partner (or ACN’s of each if a corporate partnership)
Company with an ACN and no Trust involved	ACN
Company with an ACN acting as Trustee	Trust ABN (if the Trust does not have an ABN, as per ‘normal’ Company)
Corporate entity without an ACN	Full name of the business as per articles of association
Government Entity	ABN
Trust	Trust ABN (if no ABN, use rules per the trustee)

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

How to Conduct a Search of the PPSR

There are a few reasons why trade credit suppliers may need to search the PPSR not least of which is to find out who has been lodging registrations against them! 

But while trade suppliers may not have such an immediate need to search the register as, say, financiers, it is still helpful to have a good idea as to how a search is conducted if for no other reason than that knowledge will help ensure the accuracy of their own registrations. 

It is a good rule of thumb that if a registration won’t show up on a properly conducted search, it is almost certainly not going to be effective.

The first step is to visit https://www.ppsr.gov.au whereupon you’ll be presented with a great deal of help and guidance and, at the top right hand corner, a button to click in order to take you to the PPSR itself:

If you think you might need to consult the Register on a regular basis you might find it convenient to bookmark the landing page at https://transact.ppsr.gov.au/ppsr/Home?li=False&si=0.

Once on the PPSR there will be a couple of ways to start your search, but, for ease and consistency, I’m going to focus on options presented from the main menu tabs at the top of the page:

We’re obviously going to be concentrating on the PPSR’s search facilities and, hovering over the PPSR Search tab will provide the following options:

As you can probably tell from where I have my mouse cursor in the above screencap, we’re going to start off by conducting a search of a grantor which is classified by the PPSA as an organisation.  As is suggested by the only other grantor search option, the PPSA regards any entity that is not an individual as being an organisation.

Because it is relatively topical (see here) we’re going to conduct a search on ONESTEEL MANUFACTURING PTY LTD.

Firstly, we need to identify the grantor in accordance with the PPSR’s requirements.  To this end we are immediately asked if the organisation in question has an “ARSN”.

An ARSN is an Australian Registered Scheme Number and is primarily used by managed investment schemes – not a customary Grantor for trade credit suppliers.

After selecting ‘No’, you are then presented with:

OneSteel Manufacturing is a PTY LTD company and will therefore have an ACN (Australian Company Number).

However, once ‘Yes’ is selected and the opportunity to enter the ACN number is provided the following warning is also presented:

Here is the most clear-cut guidance provided by the PPSR that, where the company you are trading with is acting as the trustee of a trust, the registration needs to be lodged against the ABN of the trust. 

If OneSteel was acting as a trustee, we’d change our mind and, counter-intuitively, select ‘No’ to the question asking if they have an ACN, thus opening up the opportunity to select ‘Trust’ as an organisation type and enter the relevant trust ABN.  However, OneSteel does not act as a trustee of any trust, therefore, we will leave our response as ‘Yes’ and continue.

After entering OneSteel’s ACN in the box provided we are prompted to use the ‘Verify’ button to check to see that the number we’ve entered produces a name match with ASIC’s records that reflects our expectations.

In this instance, there’s been no error and all is good.

The PPSR now gives us the opportunity to tweak our search a little, offering the opportunity to search for registrations lodged during a specific date range:

Or for registrations lodged against specific classes of collateral:

Note, that if you choose to search by date range (say for example, you’re repeating a search conducted a couple of months ago and are only interested in registrations lodged since that time) you won’t be allowed any other options to filter your search.

Also note that if you choose to restrict your search to a specific collateral class (or classes) you will always have ‘All present and after acquired property’ registrations included in your results whether you wanted them included or not.

You also have some further options for your search under the heading Advanced search criteria:

The options are largely self-explanatory and, as you can see from the above screencap, are defaulted so as not to limit the search results.

I find it a little amusing that if you attempt to un-check all three Transitional registration criteria boxes you get the following error message:

Anyway, silly personal amusements aside, you then have the opportunity to sort your search results by registration number, either showing oldest to most recent or youngest to least recent.

And that is pretty much it. 

You get the opportunity to enter a reference to help remind you why you did the search or to identify later what the search related to, but the next step is to select ‘Search’ and get your credit card out ready to pay the $3.40 search fee.

UPDATE: Note that the fee for such searches has been reduced to $2.00.

Correct Identification of the Grantor

The end of January saw the NSW Supreme Court hand down a stark reminder that failing to correctly identify a Grantor when lodging a registration on the PPSR will have serious (and potentially very expensive) repercussions.

The case concerned the lease of some $23 million or so worth of equipment from Alleasing Pty Ltd to OneSteel Manufacturing Pty Ltd. The leases in question satisfied the PPSA's definition of PPS Leases (s13 of the Act) and were duly registered on the PPSR in order to protect Alleasing's continued interest in the equipment.  Unfortunately for Alleasing, the registrations identified OneSteel as the Grantor by reference to OneSteel's ABN, whereas the PPS Regulations (via some rather convoluted wording) required that the registration identify OneSteel by their ACN.

Although it might be argued (and to some extent it was) that there was no misunderstanding concerning the legal entity that was acting as Grantor - both ABN and ACN clearly identified OneSteel Manufacturing - the issue was more focused upon the extent to which a failure to strictly adhere to the Regulations' identification rules was sufficient to render the registration ineffective.

Because a legally effective search for registrations lodged against OneSteel would need to be conducted on the PPSR against OneSteel's ACN (and thus would not reveal registrations lodged against its ABN) the court found that Alleasing's registrations were ineffective and not sufficient to prevent Alleasing's equipment from vesting in OneSteel and its administrators.

Alleasing claimed that administrators would customarily conduct searches against both ACN and ABN of a Grantor company, and would thus not have been misled by their ABN-based registration; however, this appeared to carry little weight with the court and failed to carry the day.

In this case the letter of the law clearly won out over its, alleged, spirit.

While reports of this action appear to have generated quite a bit of interest judging by blog posts and emailed newsletters, there really isn't anything particularly surprising here.  The PPSA doesn't require a great deal of information to be supplied in a registration but what is supplied must be accurate and in strict accordance with the PPSA's rules.

Although there were a couple of other issues raised in this case, it is perhaps timely for me to provide, at this point, a rough summary of the PPS Regulations' rules for identifying Grantors:

Grantor Type	Grantor Details Required
Sole Trader	Full Name (as per drivers licence) and date of birth
Sole Trader acting as Trustee	Trust ABN (if the Trust does not have an ABN, as per ‘normal’ Sole Trader)
Partnership	ABN
Partnership acting as Trustee	Trust ABN (if the Trust does not have an ABN, as per ‘normal’ Partnership)
Partnership without an ABN	Full name and DOB of each partner (or ACN’s of each if a corporate partnership)
Company with an ACN and no Trust involved	ACN
Company with an ACN acting as Trustee	Trust ABN (if the Trust does not have an ABN, as per ‘normal’ Company)
Corporate entity without an ACN	Full name of the business as per articles of association
Government Entity	ABN
Trust	Trust ABN (if no ABN, use rules as per the trustee)

As I've said and written in other places, 'close enough is good enough' and 'she'll be right' are expressions that should never be uttered in the context of a PPSA registration.

Top 5 Registration Errors

I came across an article in ‘Lawyers Weekly’ a couple of days ago, suggesting that more than 80% of businesses listing on the PPSR have made errors that may limit or invalidate their rights.

While this doesn’t really give much idea of the scale of the problem – it certainly isn’t intended to mean that 80% of all registrations are somehow wrong – it clearly reinforces the idea that the PPSR is far more demanding than it should be for a public register.

So, what are the most common errors that businesses are making?

Based, purely on my own observations, the following are the top 5 key problem areas.

Identifying the Grantor – Businesses seem much more comfortable using ABNs than ACNs and attempt to stick them in wherever possible. To the extent that they will treat an ABN and ARBN as one and the same, shoehorning a version of the ABN into a field designed to identify (primarily) overseas companies registered in Australia.

PTY LTD and PTY companies will have an ACN and failing to use that ACN when lodging a registration against them will have serious consequences.

When it comes to the PPSR, there is no such thing as ‘close enough is good enough’.  Grantors must be identified strictly in accordance with the PPSA’s rules.  When a third party wants to find out what security interests exist against a given company, they are guided by the PPSR to search by ACN.  If a search under that company’s ACN does not reveal your security interest it will almost certainly be considered invalid.

Forgetting about the Trust – Unfortunately for those who like simple rules such as “always use a company’s ACN to lodge a registration”, there is an exception where Trusts are involved. 

Where a company is acting as trustee of a trust (and that trust holds an ABN) the registration should be lodged against the ABN of the Trust.  Given that it is possible for a company to purchase both in its own right and in its capacity as a trustee, I tend to advocate lodging a registration against both.

“I don’t understand the question so I’ll leave it blank” – I’m positive that lack of customer reference numbers (or similar) included in registrations has a lot to do with the fact that the PPSR’s chosen term for this is ‘Giving of Notice Identifier’.  It is hard to think of a more awkward, less user-friendly term.  However, while failing to make an entry in GONI won’t cause too much of a problem, leaving the ‘Purchase Money Security Interest’ option blank for the same reason will be a lot more problematic!

Anyone selling subject to a Retention of Title clause, under a consignment stock arrangement, or leasing goods will lose virtually all their much deserved priority should they fail to tick this box.  

Don’t understand the definition of a PMSI?  No worries just tick the box anyway when you’ve got a Retention of Title clause in your terms.

Not taking stock – Even when the terms should be relatively familiar, such as in the case of “Is the collateral Inventory?” we see frequent problems. When asking why a supplier didn’t designate their interest as being over inventory, answers have included, “but it wasn’t inventory, we had to cut it to shape for them”, “we had to order it in specially”, or simply, “I didn’t think it was important”.

Firstly, everything in a PPSR registration is important.  Secondly, if you are selling goods that your buyer is going to be on-selling, using as part of their own end-product for on-sale, or using up in a production process or similar, it will be inventory. Failure to identify it as such could easily mislead a debtor financier or factor into thinking they can take clear title to accounts receivables, for example.  And, under the PPSA, if an error in registration can mislead it will, more than likely, be deemed ineffective.

Processing Proceeds – ROT suppliers are leaving the ‘Are proceeds to be claimed?’ question blank far too frequently.  While they may know what proceeds are, what they may not be aware of is their entitlement to claim proceeds for the on-sale of the goods they have supplied.

As a general rule, if you tick the PMSI box, you should also tick the Proceeds box.

While there are plenty of other opportunities for mistakes to be made (claiming a control of assets you don’t have, poorly thought out collateral descriptions etc), the above certainly represent the conjunction of the most common and most impactful.

Of course, the biggest error would be not to lodge a registration at all!

Links to help identify Legal Entities

Following on from my piece regarding the importance of correctly identifying your Grantor on the PPSR - see here - I undertook to post some links and hints to make this task a little easier.

ASIC should probably be your first port of call.

https://connectonline.asic.gov.au/RegistrySearch/faces/landing/SearchRegisters.jspx?_adf.ctrl-state=b808lr8ev_19

This link helps identify whether organisations have ACNs. 

Choose “Organisation & Business Names” from the drop down box and enter the name of the business you are looking for.  You’ll probably get a list of matches from which you can choose the one that matches your customer precisely.

Any Australian businesses with PTY or PTY LTD at the end of their name must be registered here.

Most businesses with LTD at the end of their name are likely to be here although some state registered businesses may not be.

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https://connectonline.asic.gov.au/RegistrySearch/faces/landing/bn/SearchBnRegisters.jspx?_adf.ctrl-state=b808lr8ev_28

Where all you have is a trading name, this link is useful for identifying who owns that trading name.

Choose “Business names index” from the drop down box and enter the trading name for the business you are looking for.  If we enter “Haymans” for example, we will find on the second page of search results the following match:

Clicking on that entry will give you the following:

Showing that, in this example, the legal entity behind the trading name is Metal Manufactures Limited.  

Unfortunately, business names are registered against ABNs and do not show ACNs but, in this instance, clicking on the ‘Metal Manufactures Limited’ name will take you to a screen identifying the organisation’s ACN (as well as other trading names registered to them):

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http://abr.business.gov.au/Index.aspx

This link will take you to the Government’s ABN Lookup service. 

While it will certainly confirm to whom an ABN is registered it won’t identify who is acting as the legal entity should the ABN belong to a Trust. It will often show trading names used by the ABN holder (not always reliably however) which can then be used to perform a separate look-up as per the previous link provided above.

Identifying Your Grantor for the PPSR

You may have an ACN, ARSN, ARBN, ABN, RBN or even a Name which means you will almost certainly have a choice as to how you identify your business.  

While we often see choice as a good thing, this will not necessarily be the case when every option means an additional fee-incurring search you might need to undertake on a national register.

The Personal Property Securities Register (PPSR) has been designed as a national, publicly accessible, database where anybody, for the price of a cup of coffee, can run a search to see what security interests are held against a particular business or individual.

Because of that design, if a person conducting a search, in accordance with the PPSR’s guidelines, against a particular business is unable to see a security interest you lodged against that business then your registration will, in all likelihood, be deemed invalid and your security interest will be rendered ineffective.

Therefore, it is of the utmost importance that, when registering your security interest on the PPSR, you don’t just correctly identify the business against which you are taking your security but you identify that business in strict accordance with the PPSA’s rules.

Thus, while you might accurately transpose ABC Pty Ltd’s ABN onto the register by way of identifying your ‘Grantor’, the PPSA’s rule for identifying Pty Ltd companies is to use that company’s 9 digit ACN – this isn’t just a preference or a helpful guideline, but a fixed, unwavering insistence.  Your use of the company’s ABN isn’t just going to be the cause of a minor hiccup, swiftly cleared up by a quick phone call to the liquidator, it will, almost certainly, mean the complete and total loss of your security interest.

So what are the PPSA’s rules?

Firstly, the issue is whether your Grantor is an individual or an organisation.

If your Grantor is an individual, then, regardless as to whether they have an ABN or trading name, they need to be identified on the PPSR by the individual’s full name and date of birth.

If the Grantor is not an individual then they will be deemed an organisation.  It doesn’t matter that they are a husband & wife partnership, a local football club or Woolworths, they are all organisations.

The rules for organisations

The first question the PPSR will ask is “Does the organisation have an ARSN?”

This is equivalent to being asked, as a first question, upon registering with a new doctor, whether you have a third nipple!

An ARSN is an Australian Registered Scheme Number.  It is a 9 digit number issued to Australian managed investment schemes by ASIC.  It is a unique identifier and no two schemes can have the same number.

Next up, you are asked if the organisation has an ACN.  

An ACN is an Australian Company Number, it comprises 9 digits and is issued by ASIC to all companies incorporated under the provisions of the Corporations Act.  All your Pty Ltd customers will have an ACN and, even though they may not put it front and centre on their letterhead or will prefer to use their ABN when completing credit applications, this is the number you must use to identify such businesses. 

The only exception to this might be where the Pty Ltd company is specifically acting as trustee for a trust and using the ABN of that trust.

If your customer does not have an ACN you’ll be asked whether they have an ARBN.  

This is a little more common that an ARSN and stands for an Australian Registered Body Number, also comprising 9 digits and also administered by ASIC.  ARBNs are primarily issued to foreign companies wishing to operate in Australia.  Again, if the ARBN holding company is acting as the trustee of a trust with its own ABN, any registration should be lodged against the ABN of that trust.

Do not confuse an ARBN with an ABN – the two are quite different. 

If the organisation doesn’t have a 9 digit ACN, ARBN or ARSN then you will be asked to choose an appropriate category for your Grantor: Partnership, Body Politic, Trust, or Other.

Partnerships

The PPSA doesn’t care if this is a partnership of one or more individuals, a partnership between companies or a partnership between individuals and companies.  If the partnership has an ABN then use that number to identify your Grantor. 

If the partnership doesn’t have an ABN (not just that you don’t know it but that it hasn’t actually been issued with an ABN) then a registration should be lodged identifying the Grantor by the constituent parts of its partnership.  That is to say, if the partnership comprises two individuals then lodge the registration against each of those individuals stating their full names and dates of birth; if the partnership is between two companies then lodge the registration against each of those companies stating their ACNs.  

The PPSR allows for more than one Grantor to be identified on the same registration.

Bodies Politic

This is an all-embracing term for local, state and federal government entities.  The Government’s ABN Lookup facility provides an easy way of identifying such bodies if the way they’ve named themselves isn’t sufficient giveaway in itself:

Or

Many suppliers decide that the risks are sufficiently low when dealing with Government buyers not to bother lodging registrations against them, others may find that the terms of purchase they are required to accept do not include provision for any security interest that can be lodged on the PPSR.

Trusts

I won’t waste your valuable reading time with any more whinging regarding trusts and the idea that a trust is legally able to grant a security interest or indeed can be considered a legal entity in its own right, suffice to say that, for the PPSA’s purposes, a trust may be a discretionary trust, fixed trust, unit trust, trading trust, or any of a number of variations.  Again, the ABN Lookup facility can be useful here.

Others

We’re now left with everything else that doesn’t fall into one of the above categories which will include many charities, independent schools, sporting associations, strata plans and co-operatives to name but a few.

As far as the PPSA is concerned, it doesn’t matter if such organisations have an ABN; if they are not an individual, don’t have an ACN, ARSN or ARBN, and are not a partnership, body politic or trust, they need to be identified simply by the name of the organisation.

Whinge

Quite why the PPSA chooses to break the identification of Grantors into these arbitrary categories largely escapes me.  ASIC readily allows for searching its database for any 9 digit number it administers regardless as to whether it is technically an ACN, ARSN or ARBN – why does the PPSA care?

What benefit accrues from breaking down ABN holders into categories?  If a partnership can have registrations lodged against its ABN why can’t strata plans and co-operatives?  Why add extra hoops for registrants and searchers alike to jump through?  Why add additional opportunities for errors that could render registrations invalid?

Resources

This post is already long enough, so I’ll post a separate article providing some more links and hints for identifying the precise legal entity with which you are trading.