Forge’s Failure led to the Delivery of a $50M Windfall

In the recent decision of Forge Group Power Pty Limited (“Forge Group”) (in Liquidation) (Receivers and Managers appointed) v General Electric International Inc [2016] NSWSC 52 (GE), the Court’s decision provided some useful guidance on the interpretation of what is a PPS  lease and when the title in leased goods vests in the event of Insolvency.

This matter concerned a lease of turbines by GE to Forge Group, following which Forge Group was placed into voluntary administration. The Administrators noted that at the time of their appointment, GE had not registered its security interest in the turbines  on the PPSR and accordingly, considered that their appointment resulted with title in the turbines vesting in the company pursuant to section 267 of the PPSA, commonly known as the “vesting rule.” i.e. GE’s security interest was unperfected.

In response, GE contended that the PPSA did not apply to the turbines as these turbines were fixtures for the purposes of Section 8 of the PPSA, which states that fixtures to land are not subject to the operation of the PPSA.

The court looked at section 10 of PPSA which defines fixtures as goods that are affixed to land. The definition of “affixed to land” embraced the common law concepts, which emphasises on the intention of persons who put the goods in place as well as the degree and objective of annexations. The court held that the turbines were designed to be demobilised and could be moved without causing damage to the land; the turbines were therefore not fixtures within the meaning of the PPSA.

GE also argued that it was not regularly engaged in the business of leasing goods for the purposes of s13(2) (a) of the Act, which states that a PPS lease does not include a lease by a lessor who is not regularly engaged in the business of leasing goods. Therefore, the turbines should not be considered as a PPS lease and accordingly, did not fall within the ambit of the PPSA.

The Court rejected this argument and held that section 13(2)(a) of the Act applies as at the time when the lease was entered into. In this case, the lease was executed in March 2013. Further, “regularly engaged” looks at the conduct of a company as a whole, both in Australia and Overseas, when the relevant interest of the lessor arises. In this regard, in March 2013 when the lease was executed. The court found that leasing goods were a proper component of GE’’s business worldwide and locally at this time.

This case reinforces the paramount importance of registering security interests pursuant to the PPSA and highlights that failure to do so will be no excuse for a party which finds itself on the wrong side of the operation of the PPSA.