The Personal Property Securities Act 2009 (‘PPSA’)(Cth) was implemented in 2012 to promote consistency, accessibility, and certainty in transactions, by placing an emphasis on the substance of transactions rather than the form. Section 12 of the Act defines a ‘security interest’ as an ‘interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation.’
In the case of Forge Group Power Pty Ltd (in liq) v General Electric International, Inc NSWSC 52, General Electric (GE) leased 4 mobile gas turbines to Forge for a fixed term. However, administrators were appointed to Forge when they became insolvent, and the issue was whether the lease was a PPS lease within the PPSA. The court considered whether GE was regularly engaged in the business of leasing goods so that the exclusion would not apply to the lease.
The court held that in assessing whether a person is regularly engaged in the business of leasing goods, regard is to be had to activity wherever it occurs and not only to activity in Australia, which was relevant in this case because GE was an American company. The test applies at the time the lease was entered into. Here, GE was regularly engaged in leasing goods as this was a proper component of their business and was reinforced by the fact that they advertised and promoted their desire to lease turbines, and they were contractually obliged to third-parties to supply rent replacement turbines if needed.personal
To avoid the application of the PPSA, GE tried to claim that the Turbines had become fixtures, and would thereby be excluded from the legislation. However, the Court held that the Turbines did not become fixtures, having regard to the objective intention with which they were placed and the degree and object of annexation. Specifically, the Turbines did not become fixtures because they were designed to be demolished and moved to other sites easily and in a short time, the power station was a temporary one, and the attachment to the land was for the better enjoyment of the turbines, not for the better enjoyment of the land.
As such, the Lease was a PPS lease and GE lost ownership of the turbines as Forge had a superior right to the turbines, which became part of the asset pool available to Forge’s liquidators. This cost GE $40 million worth of assets. The case is thus a prime example of the need to consider the PPSA in commercial transactions.