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!

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.