We previously discussed the ruling in Forge Group Power Pty Limited (in liquidation)(receivers and managers appointed) v General Electric International Inc 304 FLR 101 in our March 2016 article. It was held that four turbines leased by Forge from General Electric vested in Forge upon the appointment of external administrators. The case centred on whether General Electric was regularly engaged in the business of leasing goods, and whether the turbines leased by Forge constituted fixtures. If not engaged in the business of leasing goods, a security interest would not have arisen that required registration. If deemed fixtures, the turbines would have been excluded from the operation of the Personal Property Securities Act 2009 (Cth) (PPSA). The court found against General Electric on each of these questions.
General Electric subsequently appealed to the NSW Court of Appeal on the question of whether the turbines constituted fixtures. General Electric argued that the definition of fixture in the PPSA did not accommodate common law principles, rather solely centered on the degree of affixation to the land. The Court of Appeal found the primary judge did incorporate common law principles into the definition of fixture, and correctly applied said principles to the turbines. A summary of the relevant principles and facts was included in our February 2017 article.
An application seeking leave to appeal to the High Court has since been made.
The appeal is a timely reminder of the approach Australian courts are taking in PPSA matters. Recent cases have emphasised that not only is it essential to register, the registration must be effective. In the matter of Re OneSteel Manufacturing Pty Ltd (administrators appointed) NSWC 21 the lessor incorrectly registered their security interest against the grantor’s ABN. Unless the grantor is a partnership, trustee, or body politic, registrations must be against the grantor’s ACN. This error was deemed to be a seriously misleading and defective. Importantly, a defective registration results in the security interest becoming unperfected and open to potential vesting upon the appointment of an external administrator. For the lessor, Alleasing, the error proved to be costly and ultimately resulted in the loss of a $23 million asset.
A further take out from the OneSteel case is confirmation that it’s too late once an external administrator is appointed. Provisions exist under the Corporations Act 2001 (Cth) and PPSA which allow a court to extend the time required for registration in certain circumstances, such as where the failure to register was due to inadvertence. In Onesteel the court held that upon the appointment of an external administrator the security interest had vested and an extension in time could not be granted to rectify an unperfected security interest.
The above highlights the strict approach to the PPSA which continues to be taken by Australian courts. It is yet another reminder of the importance in taking the time to get your PPSR registrations right in the first instance. If errors are found, it is essential to take action prior to an external administrator being appointed.