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)

Registering against Trusts

It’s been well over 4 years since I last dedicated a post here to the issue of trusts, so, while the earlier article still holds up well, it’s probably about time I revisited the subject and freshened up what we know.

Firstly, I’ll preface what follows with Recommendation 110 from the Official Review of the Personal Property Securities Act completed just over 2 years ago and, as far as I can tell, no closer to having the vast majority of its 394 recommendations adopted.

Recommendation 110: That the Regulations be amended so that a registration to perfect a security interest over trust assets should be made against the relevant details for the trustee, rather than the ABN or other identifying details for the trust.

Why did the Official Review make this recommendation?

Well, let’s look at what the rules for registration look like when a Trust is involved.

Unfortunately, those rules won’t be found in the Personal Property Securities Act itself, but in the Personal Property Securities Regulations 2010,  wherein you will be treated to some of the most convoluted ‘guidance’ I’ve come across in relation to the PPSA.

 

To save you the agony, I’ve summarised the key guidance:

• If the Trustee is a corporate body and has an ARSN (Australian Registered Scheme Number – pretty unlikely for trade credit transactions) then the registration should be lodged against the 9 digit ARSN.
• If the Trustee is any other kind of body (or individual) and the relevant Trust has an ABN, the registration should be lodged against the Trust’s ABN (this is probably the most likely scenario).
• If the Trustee is a corporate body but its Trust does not have an ABN (unlikely) then the registration should be lodged against the Trustee’s ACN.
• If the Trustee is an individual but the Trust does not have an ABN, then registrations should be against the individual’s details – usually, full name and date of birth.

The first problem that springs to mind lies with simply knowing whether the company that is interested in becoming your customer is acting as a Trustee or not.  Your potential customer may simply omit mentioning that they are acting on behalf of a Trust.  How is the poor supplier to know?

While the supplier may discover that there is a Trust, not knowing whether the potential customer is acting in their capacity as Trustee or purchasing in their own right will either leave the supplier open to opting for the wrong type of registration or going to the trouble and expense of lodging two registrations ‘just to be safe’.

Where does the supplier stand if goods are supplied to a company with a Trust that doesn’t have an ABN (and thus registered against the ACN of the company) only to find out later that an ABN has since been obtained for the Trust? 

Interestingly, the same rules that apply to identifying Grantors also apply to identifying Secured Parties when setting up their Secured Party Groups on the Register.  However, while failing to identify the Grantor in absolute accordance with the PPSA’s rules may lead to the registration being deemed ineffective, the situation is not as dire when it comes to identifying Secured Parties. 

As found in Future Revelation Ltd v Medica Radiology & Nuclear Medicine Pty Ltd[2013] NSWSC 1741, the determining factor will be whether the registration would be revealed during a properly conducted search – while it would not be found in the case of a wrongly identified Grantor, an incorrectly identified Secured Party’s registration would still show up in Grantor based search results.

In summary, where Trusts are involved, the PPSA’s registration rules are horrible, ill-conceived and confusing but… we’re stuck with them for the foreseeable future and, as far as companies are concerned, I advocate a belt & braces approach of lodging registrations against both the Trust ABN and the Trustee’s ACN.

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.

Migrated Security Interests - back in focus!

When the PPSR first started it was immediately populated by a number of registrations representing security interests that had been migrated across from other registers.  

Initially, we were promised that the PPSR would, effectively, absorb the role of 70 national and state registers although, in the end, substantially fewer registers had data moved across.

Unfortunately, the migration exercise was not entirely successful and statutory provisions had to be introduced in order to confer legitimacy on registrations that, in any other circumstances, would have been deemed ineffective.

With the 5^th anniversary of the PPSR, at the end of January 2017, those statutory provisions are scheduled to lapse. 

This means that any PPSR registrations you have that had originally been lodged on an older register will need to be checked to ensure their continued effectiveness.

So what type of problems might there be?

One relatively well publicised issue, when the PPSR first started, revolved around security interests with multiple secured parties.

While an original lodgement on ASIC’s register of company charges might have shown that ABC P/L, DEF P/L and GHI P/L all shared in the same security interest against a debtor/grantor, when transfer to the PPSR took place, only ABC P/L might have been shown as the secured party.  Apparently, some 27,000 registrations are thought to fall in this category!

Another problem arises from the PPSA’s very strict rules regarding how a debtor/grantor should be identified.  

These rules do not necessarily align very well with those used by the original registers.  For example, most registers would not have deemed a Trust as having sufficient legal capacity to grant a security interest and would thus have required any registration to be lodged against the trustee of that trust as opposed to the trust itself.  However, the PPSA pretty much requires registrations to be lodged against the ABN of the trust rather than its trustee.

Similarly, ABNs will have commonly been used to identify corporate grantors on pre-PPSR registers whereas the PPSA requires such to be identified by their ACN, if they have one, or their full legal name if they do not.

Registrations that don’t identify grantors by their proper, PPSA legislated, identifiers are almost certainly likely to be considered ineffective.

The PPSA also has specific rules for identifying motor vehicles, watercraft, aircraft (including various bits of aircraft) and certain intellectual property rights by serial numbers in order to be fully effective.  There will undoubtedly be a great number of instances where those serial numbers were not migrated across from their originating registers.

If you have any security interests that were ‘automatically’ brought across from another register at the start of the PPSR, you only have a matter of weeks left to make sure they meet the PPSA’s requirements before they lose any ‘artificial’ effectiveness the subsequent statutory provisions may have conferred.

PPSR & ‘Complicated Scenarios’

During the late 12^th and early 13^th centuries, the then Pope was having some difficulties with what, he deemed to be, heretical Catholics – those whose beliefs were out of step with the orthodox Catholic teachings of the time.  This resulted in some pretty horrific acts, particularly in southern France, and none more so than the massacre at Beziers in July 1209.

The town of Beziers was seen as a stronghold of Catharism (the heretics) but also included a fair-sized population of orthodox Catholics.  When ordered to attack the town, the story goes that a young soldier asked the Pope’s representative, Arnaud Amalric, how he would be able to tell the difference between orthodox Catholics and the heretic Cathars.  The reply has been filtered down through history to us as ‘Kill them all and let God sort them out”.

I feel a little uncomfortable quoting Amalric in a context as mundane as the PPSR but I’ve found myself increasingly resorting to advice along the lines of:

‘When in doubt, lodge a registration’ or

‘It’s better to have a registration you don’t need than need a registration you don’t have’ and 

‘Register them all and let God sort them out’.

Personally, I don’t really like the ‘scatter gun’ approach, I prefer a little more surgical precision, but there comes a point where the issue is not just about being right but also about avoiding getting caught up in expensive, long, drawn out arguments where you need to demonstrate that you are right.

While the PPSR has been with us for well over 4 years now, there is still a surprising lack of legal precedent established and there are a number of areas where argument is commonplace. 

The extent to which a Transitional registration is still appropriate despite minor amendments to terms & conditions; when is it appropriate to register against a Trust and when against the trustee of that trust; and to what extent a PMSI registration can also perfect a non-PMSI element are just a few of the more contentious areas.

In a recent question that was put to me, a client is trading with a buying group where invoices will be paid by one entity and yet goods will be delivered to, and on-sold by, a number of separate, albeit, related entities.  Who should the registration be lodged against?

Without going into the specific terms, my advice was, effectively, two-fold:

1. You register against the entity, or entities, that have demonstrably accepted your retention of title clause; and
2. Register against them all – at least one of the registrations is bound to be right!

The second response isn’t one I’m particularly proud of, but suppliers regularly face complicated scenarios such as these and legal advice can be expensive.  A PPSR registration, on the other hand, will cost as little as $6.80.  

Not sure which of 10 companies to register against?  

Asking a law firm to check your agreements and advise, will result in an expenditure of anything up to $1000; by comparison, lodging a registration against each of the 10 companies, just to be on the safe side, will cost $68.

And, as I suggested earlier, just because you’ve had legal advice, probably very good legal advice, doesn’t mean you won’t still get an argument from a liquidator who believes they have received equally good legal advice.

Is there a downside to multiple registrations in such circumstances?

The PPSA allows for appeals to be made by Grantors that believe a registration is unreasonable but, for any penalties or claim for damages to be made against the registering supplier, it would need to be demonstrated that the supplier didn’t have a ‘reasonable belief’ that the registration would be appropriate.  Again, there are no legal precedents that help us very much here, but, the more complicated the scenario, the more difficult it would be to demonstrate that the supplier’s registrations were not a reasonable response to a complex situation.

So, while I don’t particularly want to align myself with a 13^th century, blood-thirsty religious fanatic, my advice may often be ‘Register them all and let God sort them out’.

PPSR Registrations Against Sole Traders

While the PPSR allows you to describe your registration as being in respect of a security interest arising from either a Commercial or Consumer transaction, when it comes to registering that interest against an individual this differentiation appears to have no real effect.

Registrations against a sole trader entering into a security agreement on behalf of their business still have to be lodged against the individual as opposed to the business.

Any registrations against an individual must identify the individual by their full name (such as would appear on their drivers licence) and date of birth.  

The fact that the sole trader has a valid ABN (Australian Business Number) which featured prominently on their application for credit is neither here nor there and the PPSR provides no facility for entering this number as part of the registration.  

But what if the sole trader is acting as the trustee of a Trust?  The PPSA allows for the registration of security interests against Trusts using the Trust ABN - doesn't this allow a creditor to avoid having to use the sole trader's name and date of birth?

Unfortunately, the answer is far from clear.  

The Personal Property Securities Regulations 2010 provides the following definition for an individual:

individual:

                (a)    includes a sole trader who has an ABN for the enterprise for which the security interest is granted or held; and

               (b)    does not include an individual who is a partner in a partnership or a trustee of a trust if the partnership or trust has an ABN for the enterprise for which the security interest is granted or held.

Well, what's unclear about that? (b) seems to be saying quite clearly that if the sole trader is using a Trust ABN then they don't have to be treated as an individual for the purposes of registration.  

Agreed, but if we look further at the Regulations they go on to state that the prescribed details for lodging a registration against a trustee are:

               (a)    for a trustee that is an individual — the details mentioned in the item of the table in clause 1.2                        that:

                          (i)    applies to the trustee; and

                         (ii)    has the lowest item number;

The table in clause 1.2 referred to here takes us back to the instructions stating that the details needing to be provided are the full name and date of birth of the individual as found on their drivers licence!

Now, while I would suggest that the intention of the Act is probably to allow for sole traders who are acting as trustees for Trusts that have ABNs to have registrations lodged against the Trust (as an organisation) and be identified by that Trust's ABN, the relevant wording is so convoluted and unclear that, in the absence of legal precedent, a case could be made either way.