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Fail to register your interest at your own peril

PPSA Law News | May 2016

The recent decision of the NSW Supreme Court in Forge Group Power Pty Limited (in Liquidation)(Receivers and Managers Appointed) vs General Electric International Inc. [2016] NSWSC 52 highlights the peril facing owners of goods or items who do not properly secure their interest when those goods or items are in the possession of another. If you lease, lend or sell goods or items you own subject to a hire purchase agreement then you need to ensure that your interest in those goods or items is protected and properly registered on the Personal Property Securities Register (PPSR).

In the above case, General Electric (“GE”) leased turbines valued at $50 million to Forge Group. Shortly afterwards Forge Group was placed into Voluntary Administration and it became apparent to the Administrators that GE had not registered its security interest in the turbines on the PPSR, with the result being that the turbines “vested” in the company and were able to be included as company assets for the purposes of the Administration. GE tried to argue that the turbines should not be included in the Administration for two reasons:

  1. The turbines were “fixtures” on the land on which they were located for the purposes of the Personal Property Securities Act 2009 (Cth) (“PPSA”) and were not subject to the operation of the Act; and
  2. GE was not regularly engaged in the business of leasing goods for the purposes of the PPSA which meant that a “PPS Lease” had not come into existence and the lease did not fall within the ambit of the PPSA.

In upholding the rights of the Administrator to retain the turbines the court held that:

  1. Although the turbines were “affixed” to the land for the purposes of section 10 of the PPSA it could reasonably be construed that they were not intended to remain in place permanently (as “fixtures” on the land) and could be demobilised and moved without causing damage to the land which meant, therefore, that the turbines were not “fixtures”; and
  2. At the time that GE entered into the Lease of the turbines it could be reasonably asserted that leasing goods was a proper component of GE's business worldwide and locally, which would satisfy the requirement of section 13(2) of the PPSA.

The moral to this story

It is imperative that you:

  1. properly register and secure your interest in any of your goods or items which leave your possession and
  2. you enter into a written security agreement which contains terms that you will be paid for your goods or receive them back at a later date.

Registration is relatively simple and cost effective and will provide you with the peace of mind that in the event of a liquidation or administration you will be entitled to the return of your goods or their proper value if they have been “on-sold”.

If you have any questions or concerns about legal matters regarding the PPSA give us a call for an obligation free chat for up to 30 minutes on the phone or make a time to visit us in Leichhardt on 02 9560 3388.

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