A major Personal Properties Security Act (PPSA) ruling in Forge Group Power Pty Limited (in liquidation)(receivers and managers appointed) (Forge) v General Electric International Inc (General Electric)  NSWSC 52 has highlighted for those involved in leasing, renting, hiring or otherwise lending assets, the importance of registering their security interest in those assets.
The PPSA commenced operation on 30 January 2012 and introduced a new national code for determining priorities between parties holding security interests in personal property. The PPSA establishes a Personal Property Securites Register (PPSR), on which security interests can be “perfected” by registering an instrument called a financing statement. The PPSA expands the concept of security interests by including the interest of a lessor of goods under a PPS lease which, as in this case, is a lease of goods for more than a year.
In March 2013, General Electric leased four mobile turbine generators (Turbines), described as “power stations on wheels”, to Forge.
Shortly after the Turbines had been delivered to Forge’s premises at Port Hedland, Forge went into voluntary administration and a month later, into liquidation.
General Electric had not registered an interest in the Turbines on the PPSR.
The Court held that the leasing arrangement between Forge and General Electric was a PPS lease, meaning that General Electric’s interest in the Turbines was a security interest capable of being registered on the PPSR to secure its interest in priority to others.
Forge’s liquidators sought declarations that under s 267(2) of the PPSA, the interest of General Electric in the Turbines had vested in Forge immediately before their appointment of administrators, and that their right or title to, or interest in, the Turbines was superior to that of General Electric.
The Court held in Forge’s favour, allowing the $50m worth of assets to be sold; the proceeds being utilised for Forge’s creditors.
The failure of General Electric to register their security interest in the assets and pay the requisite $8 registration fee led to their loss of $50m in assets.
When liquidators, receivers or administrators are appointed to a company, security priority interests in assets can be called into question. Clients who own assets that are rented, leased, borrowed or otherwise held offsite by a third party should turn their minds to whether the arrangement is correctly documented, as well as to whether a security interest in those assets should be registered on the PPSR to protect their interest in priority to others.