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  5. The great ACN/ABN divide: Practical tips for small business to protect personal property security interests
30 Mar 2017

Concerning the Personal Property Securities Register (‘PPSR’), the courts have reminded us recently of the importance of:


(a)          generally, where the grantor is a company, using the grantor’s ACN to identify it on the PPSR; but


(b)          where the grantor is doing business with you as the trustee of a trust (for example, a self-managed superannuation fund or a discretionary family trust), identifying it by the trust’s ABN rather than the trustee company’s ACN.


This reminder was forcefully given in the recent case of One Steel Manufacturing Pty Ltd (administrators appointed) [2017] NSWSC 21. In that case, the confusion between ACN and ABN cost the secured party $23 million!


As lawyers, we can think of many steps that the secured party could have taken in that case to ensure that its security interest was properly registered. This may well have enabled that party to protect its interest in the $23 million worth of goods that instead, vested in the liquidator for distribution amongst the insolvent grantor’s priority creditors. Clearly, any such steps would have been worth the cost and effort to protect such valuable assets.


However, where a secured party is smaller and its asset holdings are not valued in the millions of dollars, a secured party may find it harder to justify the cost of engaging lawyers to undertake such investigations with respect to each individual grantor-customer.


We at HHG Legal Group appreciate that smaller operators need a way to balance their need to protect payment and property rights against the constraints on expenditure that are part of the reality of running a small business.


In finding that balance, a small business will probably not be able to eliminate entirely, the risk of getting caught by the sometimes highly technical provisions of the Personal Property Securities Act 2009 (‘PPSA’). However, a small business may be able to reduce its exposure to an acceptable level by taking the following practical steps at least:


(a)          Register security interests against both the ACN and the ABN of any grantor company that identifies itself as a company ‘as trustee for’ (often abbreviated to ‘ATF’) a trust in
its own letterhead, purchase orders, receipts, etc.


(b)          When you are doing business with a new customer, particularly if you are not entirely sure of its credit-worthiness, ask its representative whether it trades as a trustee for another company and ask that question in writing, so that you have some evidence of the answer.


(c)          conduct a current company search in relation to a new corporate customer. Check under the heading ‘Current (Shareholder/Member)’ (usually on the second page of the search) whether an ‘N’ or a ‘Y’ appears next to the words: ‘Beneficially Owned’. If the letter ‘N’ appears next to those words, this means that the named shareholder is holding the shares as a trustee on trust for another person or entity, which you should take as a warning sign and investigate further.


(d)          Check where the registered office address of the company is. If it appears to be an accountant’s firm (and most Proprietary Limited companies are registered at their accountant’s office), ask the company’s authorised representative to permit you to speak to its accountant. Then contact the accountant and ask whether the company trades as a trustee or in its own right.


As a matter of commercial risk management, you may decide to take all, some or none of these steps in any particular case, depending on:


(a)          the value of the collateral you are trying to protect;


(b)          the amount of credit you are trying to secure;


(c)          your assessment of your customer’s credit-worthiness; and


(d)          your relationship and trading history with the customer.


Ultimately, these are commercial rather than legal considerations. However, they still need to be made with the benefit of good legal advice.


To obtain such advice, contact HHG Legal Group’s experienced Personal Property Securities lawyers on Freecall 1800 609 945 or email us now.

*This is general information only, and does not constitute specific legal advice. Please consult one of our experienced Legal Team for specific advice relevant to your situation.

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