The Piggy Bank windfall – aka “the acronym edition”
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 obligation.
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 priority” status.
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:
(a) gain “super priority” status;
(b) protect your security interest in the personal property; and
(c) ensure that your ownership rights prevail over other security interests.
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