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Register your personal property security interest !


Forge Group Power Pty Ltd (In Liquidation) (Receivers and Managers Appointed) v General Electric International Inc. [2016] NSWSC 52

The recent case of Forge Group Power Pty Ltd (In Liquidation) (Receivers and Managers Appointed) v General Electric International Inc. [2016] NSWSC 52 ('General Electric Case') provides a timely reminder that anyone with an interest in personal property should register that interest on the PPSR.

What is the PPSA & PPSR?

The Personal Property Securities Act 2009 (Cth) (‘PPSA’) came into operation on 30 January 2012. Since that time anyone with an interest in personal property can register that interest on the Personal Property Securities Register (‘PPSR’) see https://www.ppsr.gov.au/.

The PPSA changed the way that an interest in personal property is secured and the way to work out who has priority over that interest. It contains priority rules for determining who has priority between parties holding a security interest in that personal property. A security interest must be perfected and one of the ways to do this is to register an instrument called a financing statement on the PPSR.

A few definitions

'Personal Property'

It is any form of property that is:

  • not land; or

  • is excluded from the operation of the PPSA. This means that the Act does not apply to certain interests even if they are interests in personal property.

One of the things excluded from the PPSA are fixtures (section 8 (1) (j) of the PPSA). A fixture is defined in the the PPSA as 'goods, other than crops, that are affixed to land'. If property is a fixture then the PPSA does not apply and it cannot be registered on the PPSR.

(for the full definitions see section 10 of the PPSA).

'PPS Lease'

Means a lease or bailment of goods for a term of more than one year but it does not include a lease by a lessor who is not regularly engaged in the business of leasing goods (for the full definition see section 13 of the PPSA).

The facts

Forge Group Power Pty Ltd (In Liquidation) (Receivers and Managers Appointed) ("Forge Power") was retained to design a power station in Western Australia and supply, construct, test and commission all equipment installed. General Electric International Inc. ("GE") leased to Forge Power four mobile gas turbines ("Turbines") for a fixed term. The Turbines were worth approximately $50 million.

The lease was not registered on the PPSR. Not long after the Turbines were installed Forge Power appointed voluntary administrators, then went into liquidation.

The big question - Does the PPSA apply?

If the lease of the Turbines is a PPS Lease, then the PPSA applies and because GE had failed to perfect their interest in the Turbines by registering the interest on the PPSR then GE would lose its interest in the Turbines to Forge Power !

Breaking it down

The PPSA will apply if the Lease is a PPS Lease. The Lease will be a PPS Lease if:

1. GE was regularly engaged in the business of leasing goods (Section 13 (2) (a) of the PPSA); and

2. the Turbines had NOT become fixtures.

It was not in dispute that GE was regularly engaged in the business of leasing goods outside of Australia. The question was whether this leasing activity of GE outside of Australia was captured or whether GE was required to be regularly engaged in the leasing of goods inside Australia to pass the test at no.1 above. It was held in relation to this test that:

  • being engaged in the business of leasing goods will include this activity wherever it occurs and not only activity in Australia; and

  • the time to apply the test was at the time the lease was entered into.

For practitioners, it is interesting that In considering whether the Turbines had become fixtures it was held in relation to the test at no.2 that the words 'affixed to the land' in section 10 of the PPSA means affixed according to common law concepts.

Outcome

Unfortunately for GE it was found that the Lease was a PPS Lease and the Turbines had not become fixtures. The consequence of this ruling was that the interest in the very expensive Turbines vested in Forge Power immediately before the appointment and Forge Powers right to the Turbines was superior to that of GE.

Should you register your interest?

YES ! Registration of a security interest on the PPSR is not mandatory and accordingly it is a commercial decision for the person that has an interest in the personal property. In my view if you have an interest that is able to be registered on the PPSR you should register it. The cost of registration is minimal and as the General Electric Case shows, there can be dire consequences for failing to register.

The contents of this publication is for reference purposes only. This blog post does not constitute legal advice and should not be relied upon. If you require legal advice please contact Aitken Partners on (03) 8600 6056.


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Get in touch // Tel: +61 3 8600 6056 // sward@aitken.com.au 
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