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A timely reminder to register your interests on the PPSR

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By Divya Sharma, Lawyer, MST Lawyers

What you need to know

  • On 11 February 2016, the Supreme Court of NSW delivered a decision that again highlights the severe and costly consequences that may flow from failing to register security interests under the Personal Property Securities Register (“PPSR”).
  • The decision also provides useful guidance on the scope and application of the Personal Property Securities Act 2009 (Cth) (“PPSA”).

Background 

In March 2013, General Electric (“GE”) entered into an agreement to lease a number of mobile gas turbines generators sets (“the Turbines”) to Forge Group Power Pty Limited (“Forge”). The term of the lease was to continue for two years, subject to an option to extend. However, shortly after the Turbines had been installed, Forge entered into voluntary administration. Since GE had failed to register its security interest in the Turbines on the PPSR, the liquidators of Forge sought to rely on s 267(2) of the PPSA to argue that the Turbines vested in Forge, rather than GE. This effectively meant that the Turbines would be available to Forge’s liquidators to sell and distribute to Forge’s creditors. In response, GE sought to establish that the PPSA did not apply to the Turbines.

Was GE Regularly Engaged in the Business of Leasing Goods?

Firstly, GE argued that at the time the lease was entered into it was not regularly engaged in the business of leasing goods in Australia. It therefore contended that the exclusion under s 13(2)(a) of the PPSA applied and that the lease should be excluded from the operation of the Act.

Justice Hammerschlag rejected this argument and ruled that the GE had been regularly engaged in the business of leasing goods. In coming to this conclusion, his Honour noted:

  1. the Court will have regard to the activities of the lessor both overseas and in Australia when determining whether it is regularly engaged in the business of leasing;
  2. the test applies at the time the lease is entered into; and
  3. at the material time, and at all times thereafter, GE had been regularly engaged in the business of leasing goods in Australia.

Did the Turbines become Fixtures?

Secondly, GE sought to argue that the Turbines had become ‘fixtures’ after being installed and therefore were not personal property under the PPSA (s 8(1)(j)). It was further argued that the PPSA created a bespoke definition of a fixture – distinct from the common law definition – connoting any “non-trivial attachment” of goods to land.

The court rejected this argument and held that the words “affixed to land” under s 10 of the Act did not create any bespoke meaning, but rather referred to the common law concept of a fixture. Justice Hammerschlag then adopted the common law test, which requires the court to have regard to the degree and object of annexation, and concluded the Turbines were not objectively intended to become fixtures.

Conclusion and Implications

The courts ruling resulted in the Turbines vesting in Forge immediately before the appointment of voluntary administrators and it followed that Forge’s title was superior to that of the true owner, GE. This effectively meant that $50 million worth of GE’s assets were available to Forge’s liquidators.

The decision serves as an important reminder for suppliers and lessors to ensure that their assets are appropriately registered under the PPSR. Otherwise, a failure to do so may mean assets that are rented, leased or held by a third party, may be lost if that party goes into liquidation. 

For further information on the PPSR, please contact our experienced Corporate Advisory team on +61 3 8540 0200 or by email corporate@mst.com.au.

Forge Group Power Pty Ltd (In Liquidation) (Receivers and Managers Appointed) v General Electric International Inc [2016] NSWSC