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.

New PPSA Amendment passes its first reading

The first day of the new season saw the Government introduce the Personal Property Securities Amendment (PPS Leases) Bill 2017.

As the element in parentheses indicates, the Bill concerns an amendment to the manner in which the PPSA deals with leasing arrangements.

At present the PPSA only applies to leases that run for longer than one year, are for a shorter period but allow for extensions that would take them beyond one year, or are for an indefinite period.

The new Bill basically takes that one year qualifying period and extends it to two years.

But before anyone suggests holding off on lodging that backlog of registrations you’ve got piling up, the Bill (if enacted) isn’t intended to apply retrospectively and it’s anybody’s guess as to when it will actually come into effect given that the last amendment of this nature took 15 months to pass and another 3 months to get Royal Assent!

Clearly a lot of lobbying has been taking place behind the scenes because, at least from my point of view, this Bill is something of a surprise – there was certainly no recommendation in the official review of the PPSR to extend the PPS Lease period.

However, the Bill does incorporate an element of one of the Review’s recommendations where indefinite leases are concerned.  If passed, indefinite leases will only require registration once the goods being leased have actually been in the possession of the Grantor for the two year period. 

While this will obviously be a substantial relaxation of the rules for businesses that essentially deal in short term hires but don’t explicitly identify a maximum end date, it will be interesting to see how this ties in to the Corporations Act - s588FL of which pretty much requires registration within 20 business days of the leasing agreement being signed to avoid risking losing hired goods to any liquidator appointed within 6 months of the actual registration date.

UPDATE: This Bill was formally passed on Thursday 11th May and will come into effect as soon as it has Royal Assent.