Following on from an article we wrote last year, there has been a ruling in the case of Forge Group Power Pty Limited (in liquidation)(receivers and managers appointed) v General Electric International Inc [2016].
Failing to register four gas turbines on the PPSR has turned into a costly exercise for General Electric, with the Supreme Court of NSW ruling in favour of the assets vesting with Forge Group Power Pty Limited (in liquidation)(receivers and managers appointed).
Background
Following on from our article in August 2014, Forge Group was placed into receivership in February 2014. At that time they were leasing four gas turbines from General Electric. Under the laws governing external administrations, all assets not registered under the Personal Properties Security Act (PPSA) can vest with the lessee – in this case, Forge Group.
The receivers of Forge Group took this matter to the Supreme Court of New South Wales in an attempt to gain control of the turbines.
Were the Turbines affixed to the land?
The main points of discussion during the ruling were weather the Turbines were affixed to the land, and if the PPSA defines fixtures as goods that are affixed to land.
Relevant tests/indicia [para 81]-[83]
- Whether the attachment was for the better enjoyment of the property generally or for the better enjoyment of the land and/or buildings to which it was attached;
- The nature of the property the subject of affixation;67]
- Whether the item was to be in position either permanently or temporarily;
- The function to be served by the annexation of the item.
- Whether removal would cause damage to the land or buildings to which the item is attached;
- The mode and structure of annexation;
- Whether removal would destroy or damage the attached item of property;
Relevant facts [para 134]
- The Turbines were designed to be demobilised and moved to another site easily and in a short time. Significantly, the trailers keep their wheels throughout;
- The Turbines were only intended to be in position on the site, which was a temporary power station site, for a rental term of two years subject to limited optional extensions;
- Forge Power was contractually obliged to return the Turbines at the end of the rental term;
- The Seismic & Wind Kits were to prevent damage to the Turbines during cyclonic conditions and are themselves designed to be easily removed for demobilisation and then reused at a new site;
- The attachment of the Turbines to the land (via the Seismic & Wind Kits and connection to utilities) was for the better enjoyment of the Turbines as turbines, and not for the better enjoyment of the land;
- Removal of the Turbines would cause no damage to the land;
- A design feature is that removal will not destroy or damage the Turbines;
- The cost of the removal of the Turbines from the site would not exceed the value of the Turbines – it would be modest in comparison;
- The Head Contract includes an express term that property in the Turbines will not pass to the owner of the land;
- The Lease includes a term that the Turbines will remain at all times personal property notwithstanding that they may in any manner be affixed or attached to any other personal or real property;
- Forge Power was not the owner of the site and it plainly did not intend to make a gift of the Turbines to Horizon Power; and
- GE prescribed the mechanism for attachment and plainly did not intend the units to become the property of the owner of the land.
Given the relatively insignificant cost of only $16 to register assets under the PPSA (excluding any legal fees if required in the transaction), this oversight has ended up being a major and costly error for GE/APR Energy.
This matter again highlights the importance of correctly registering assets on the PPSR.
Why you should register your assets on the PPSR
If you provide finance, supply, lease, hire or loan assets to third parties, we strongly recommend you obtain appropriate advice and register your ‘security’ interest in the assets to protect your position. Failing to properly register may result in the loss of your assets in the event of insolvency.
If you would like more advice on how SV Partners can assist you with registering your security interests or any advice on PPSR matters, please contact one of our expert advisors on 1800 246 801.