How to lose US$44 million in 344 days - PPSA
The Personal Property Securities Act (PPSA) has done it again!
In a decision handed down on 6 February 2017 the NSW Court of Appeal found that the lessor of goods had failed to perfect their security interest in circumstances where the PPSA applied and, as a result, lost title to $US44 million worth of equipment.
Under the PPSA if a person supplies goods on credit or leases goods then they can (and should) register a ‘security interest’ to protect their ownership of the goods until either (1) the goods are fully paid for or (2) the lease comes to an end and the goods returned. Registering a security interest on the Personal Property Securities Register ‘perfects’ their rights and puts the world on notice that it claims an interest in the goods. The PPSA is about registration; it is no longer about ownership rights.
In this case, on 5 March 2013 General Electric International Inc (GE) agreed to lease four mobile electricity generating gas turbines to Forge Group Power Pty Ltd (Forge Power) for two years. The turbines were delivered and installed to a temporary power station. GE sold part of its leasing business to Power Rental Op Co Australia (Power Rental) and took ownership of the turbines in October 2013, even though the turbines were physically at the Forge Power site.
As luck would have it, voluntary administrators were appointed to Forge Power on 11 February 2014.
Under the PPSA unless you have a perfected security interest, when an administrator is appointed title in goods that are leased by the company can vest in the administrator. At no point did GE or Power Rental register on the PPSR, even though they had approximately 344 days between the start of the lease and the date of the administration to do so.
The administrators claimed that because there was no perfected security interest, and the lease of the equipment was a ‘PPS Lease’ they now owned the turbines (worth approximately US$44 million). In order to get their turbines back Power Rental argued that because the turbines had been fixed to the land, they were not ‘personal property’ and the PPSA did not apply to them.
So what was the decision?
The Court of Appeal held that the turbines did not become ‘fixtures’ to the land. As the turbines were not ‘fixtures’ the PPSA did apply, the lease of the turbines was a PPS Lease and should have been registered. As neither GE nor Power Rental registered or perfected their security interest, they lost title to the turbines.
If you supply goods on credit or you lease or hire goods then you can (and should) register a security interest – don’t assume you are protected.
If you have any questions regarding the PPSA or the PPSR, contact Katie Innes.