One of the many industries that the Personal Property Securities
Act (PPSA) impacts upon is equipment hire, specifically hirings to
the mining industry.
Such hirings usually comprise lease, chattel mortgage or term
purchase contracts involving multi-million dollar
"big-ticket" trucks and diggers, colloquially known as
"yellow goods". These goods constitute serial numbered
property under the PPSA. Hence the contracts deploying this kind of
property require registration on the PPS Register if the
deployments are to be for durations of 90 days or more.
Obviously, where a supplier/financer hires to (or takes direct
security from) a mining company or contractor for use of the
equipment on or about a particular mine site, no major issues arise
apart from the need for PPSA registration within the specified time
constraints.
However, the vagaries of the industry are such that the
lessee/grantor may for operational reasons periodically find itself
facing substantial down-time in equipment utilisation. No return is
being generated, but the equipment is still incurring finance
charges which must be met. The user understandably looks to
sub-lease or otherwise re-deploy the equipment, often irrespective
of the terms of the hire contract.
As a result the original lessee/grantor loses rights to the
equipment, possibly for 90 days or more. This may be with or
without the consent of the owner/financier, but prior to the PPSA ,
as a legal matter at least, it did not matter. The owner/financier
could always assert ownership of the equipment, wherever and with
whomever the equipment may have been at the relevant time. This was
important in a worst case scenario if the lessee/customer
experienced financial distress, such that a receiver/manager or
even a liquidator had been appointed.
Now, under PPSA's so-called "extinguishment" rules
the sub-lessee may deal with the equipment without the impediment
of the owner-financier's security interest registered against
the head lessee-grantor. If the sub-lessee gets into trouble its
liquidator may lay claim to the equipment, despite ownership rights
residing with the original lessor/financer.
If the sub-lessee is itself a plant-hire company, the PPSA's
extinguishment rules should not apply, so that the head
lessor's security interest prevails against such a third party
sub-lessee.
However, the plant hire company may on-hire the equipment to one
of its customers for direct use, which is well beyond the original
remit of the original lessor. Given industry practice this could be
without the lessor's knowledge. The equipment could be seized
and sold without the true owner having a say in the matter.
A partial solution could be for the owner/lessor to register
against the sub-lease as "chattel paper", but technical
questions of "attachment" and timing of registration
remain. The issue becomes even more problematic with
sub-sub-leases. For commercial parties the legal position needs to
be shored up with diligent management and monitoring.
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.
Specific Questions relating to this article should be addressed directly to the author.
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