Proposed changes to PPS lease definition

On 1 March 2017 the Federal Government introduced the Personal Property Securities Amendment (PPS Leases) Bill 2017 into parliament, which, if passed, will amend section 13 of the Personal Property Securities Act 2009 (Cth) (PPSA) to:

• replace the current one year threshold for deeming a commercial lease or bailment to be a PPS lease to two years, and
• remove the much criticised ‘indefinite term’ category of PPS lease, unless the lessee or bailee has held the goods for longer than two years with the lessor or bailor’s consent.

A PPS lease is deemed to be a security interest under the PPSA which means that a lessor or bailor whose arrangement falls within section 13 of the PPSA must perfect it, usually by registration on the Personal Property Securities Register (PPSR), even if the arrangement is not designed to provide security. A failure to do so can lead to the lessor or bailor losing their rights to the goods should the lessee or bailee go into voluntary administration, liquidation or bankruptcy.

The impact of the changes will be that only commercial hire arrangements of longer than two years, or potentially longer than two years including options, will need to be registered on the PPSR as a PPS lease.

These proposed changes have no doubt been proposed because of the impact of recent cases such as Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liquidation) (receivers and managers appointed) [2017] NSWCA 8 where the New South Wales Court of Appeal upheld a decision that the PPSA applied to four mobile turbines (worth $44 million USD) leased by Forge Group Power Pty Ltd (Forge) from General Electric International Inc (GE) because they were each for a period in excess of 12 months, GE was regularly engaged in the business of leasing goods and the turbines had not become fixtures. This finding meant that the current lessees of the turbines lost any interests in the turbines they held when Forge entered into administration.

Click here to read McCullough Robertson’s detailed focus article on this case and the implications of it in industry.

Whilst on the topic of PPS leases, the case of Re OneSteel Manufacturing Pty Ltd (administrators appointed) reinforces the importance of not only registering your PPS lease, but registering correctly.

OneSteel leased equipment from Alleasings Pty Ltd. The equipment had a value in excess of $23,000,000. Unfortunately, the Alleasing employee responsible for making the registrations failed to register the security interest in accordance with the specific registration requirements (in this instance, the incorrect ABN was used in the registration) which ultimately resulted in the registrations being defective. This was only bought to Alleasing’s attention once OneSteel had appointed administrators and by then it was too late; Alleasing’s security interests were lost, in that they vested in OneSteel immediately prior to the commencement of the voluntary administration.

Click here to read McCullough Robertson’s detailed focus article on this case and the implications of it in industry.

Do you need help?

McCullough Robertson can assist you or your business with identifying how best to protect your interests under the PPSA.

If you have any questions about the above cases or would like any advice on PPSA issues, please contact us.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.