Property Update - July 2006

• Registering second mortgages

SHOULD LEGAL AGREEMENTS CONTAIN A COMPANY'S ACN OR ABN? SURPRISINGLY, THE CHOICE CAN HAVE QUITE WIDE-RANGING CONSEQUENCES

Background

First, a bit of history.

ACNs or Australian Company Numbers were introduced to the Corporations Act 2001 many years ago. The purpose was to give a unique identifier number to each company. A company can even simply have as its name its ACN.

ABNs or Australian Business Numbers came along with the introduction of GST on 1 July 2000. The ABN for most companies is the ACN plus a two digit prefix.

A single company can have more than one ABN. Separate ABNs may be held in respect of the enterprises it conducts, such as:

• in its own right

• pursuant to a GST joint venture

• in its capacity as trustee of a discretionary or unit trust.

Many pro forma legal documents now provide the option for inserting the ABN or the ACN. However, the use of an ABN could unintentionally reduce or limit the operation of a legal agreement.

Let’s consider Joe Traders Pty Limited which has two ABNs; one for the company and the other for the discretionary trust under which its main business is conducted. If Joe Traders is described in a legal agreement using the company ABN, arguments could arise as to whether the other party will have any recourse to the trust assets. This would be so despite a general clause saying that Joe Trader enters the contract in its own right and as trustee of any trust of which it is trustee. The argument could arise because the specific use of a specific ABN over another may override general catch-all provisions.

An even more awkward situation could arise if the ABN for the discretionary trust was used. Discretionary trusts do not comprise a separate legal entity, and so arguments could arise as to whether the trustee is a party to the transaction.

One would hope that in the ordinary course, courts will prevent parties from avoiding commercial obligations by using this type of argument. However a party could gain valuable time while arguing the point, particularly when it is a novel point which has not been considered by the courts previously.

It is essential whenever preparing a legal contract (whether it takes the form of formal deed, an agreement, or an exchange of letters) to use ACNs and not ABNs. An ABN is only appropriate on tax invoices.
By Jon Denovan

REGISTERING SECOND MORTGAGES

Second mortgages will no longer be registered on title, unless the Certificate of Title is produced at the Department of Lands by the first mortgagee.

Previously, if a second mortgagee could not get the first mortgagee to produce the Certificate of Title required for the registration of the second mortgage, the second mortgagee could request that the Registrar General issue a notice, under s12(1)(a) of the Real Property Act 1900, requiring the first mortgagee to produce the Certificate of Title. If the Certificate of Title was not produced by the first mortgagee within a certain period, and there were no court orders preventing registration, the second mortgage was registered on title. Following a recent judgement in the Supreme Court of NSW, the Registrar General will no longer exercise this power.

Accordingly, if a second mortgagee intends to lend money to a mortgagor and register a second mortgage on title, the second mortgagee should always obtain prior consent from the first mortgagee. In lieu of this happening, the only protection that can be offered to a second mortgagee is the limited protection of a caveat.
By Naomi Bangle

This publication is provided to clients and correspondents for their information on a complimentary basis. It represents a brief summary of the law applicable as at the date of publication and should not be relied on as a definitive or complete statement of the relevant laws.