Last week we considered the perils of "ticking the PMSI
box" when registering a security interest that was not a PMSI.
This week, we consider the impact of the PPSA on certain leases
which do not secure the payment or performance of an
Windfall Constructions Pty Ltd ("WC") is a property
development and construction company in the midst of constructing a
major resort development. WC needs to hire extensive scaffolding
for a substantial period to carry out the works. WC contacts
Stationary Scaffolds Pty Ltd ("SS"), a company that is in
the business of hiring scaffolding, and arranges for the hire of
extensive scaffolding equipment for 13 months. SS provides the
scaffolding under an operating lease agreement but does not
register their interest on the Personal Properties Securities
Register ("PPS register").
Piggy Bank Pty Ltd ("PB") is a secured financier of WC
with the benefit of a General Security Agreement ("GSA")
over its assets. PB registered its GSA on the PPS register.
During construction, WC hits bad times and a Receiver appointed
by PB begins taking steps to sell the assets of WC. The Receiver
seizes the scaffolding equipment and advertises it for sale.
A short time later, SS realises its scaffolding equipment has
been removed from the site and is advertised for sale. SS makes an
urgent application to the Court seeking orders for the delivery up
of its scaffolding equipment by the Receiver .
Will SS be able to recover its equipment?
SS's application to the Court will fail.
The scaffold lease is a "deemed security interest" for
the purposes of the PPSA, and whilst it does not secure the payment
or performance of an obligation, it is categorised as a PPS Lease.
SS's interest was therefore required to be registered on the
PPS register to protect its interest.
PPS Leases are a 'purchase money security interest'
("PMSI"), which means that on correct registration they
obtain "super priority" over other registered security
interests such as PB's GSA.
SS's failure to register its interest on the PPS register
means the Receiver is entitled to sell off the scaffolding, even
though WC didn't own the equipment.
However, if SS had taken the step of registering its interest,
given that SS's security interest relates to a PPS Lease which
is a PMSI (given it is a lease for a term of more than one year),
then it would have been given "super priority" and
PB's Receiver would not have been entitled to sell off the
scaffolding and would be required to return it to SS.
Given the scaffolding is not inventory in the hands of SS, SS
should have registered its interest within 15 business days of the
goods being delivered in order to be afforded the "super
When hiring/leasing out personal property for a term of more
than one year (which are not serial numbered goods), you must
register the property on the PPS register within 15 business days
of the goods being obtained in order to:
gain "super priority" status;
protect your security interest in the personal property;
ensure that your ownership rights prevail over other security
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).