The Supreme Court of Victoria in its decision in the case of Carrafa, Gountzos & Lofthouse v Doka Formwork Pty Ltd  VSC 570 (Relux Case), has confirmed that:
- a lease of goods for an indefinite term is a ‘PPS lease’ where the lessor is regularly engaged in the business of leasing goods; and
- if the ‘PPS lease’ is not registered within the time frames set by the Personal Property Securities Act (2009) (PPSA), interest in the leased goods may vest in the lessee upon its liquidation.
A PPS Lease is a lease of goods for 12 months or more (90 days or more if the goods are motor vehicles or water craft) or an indefinite period where the lessor is regularly engaged in the business of leasing goods.
The Lessor of a ‘PPS lease’ has a security interest which must be registered on the Personal Property Securities Register (PPSR) in order to protect that interest against the lessee (in liquidation) and third party interests.
If you want to know more about the Relux Case please read on.
Facts of the Relux Case in (brief):
- Relux Commercial Pty Ltd (in liquidation) (Relux) leased formwork equipment worth over $1 million dollars from Doka Formwork Pty Ltd (Doka) between March 2013 and April 2014.
- The leases were initiated by an order in writing from Relux to Doka and incorporated the ‘Doka General Terms and Conditions’ printed on the back of each invoice rendered by Doka and adopted by Relux by its conduct.
- The term of each lease commenced when the formwork equipment ‘left the Doka warehouse’ and expired when the equipment was ‘returned to the Doka Warehouse’. The term of each lease was therefore for an indefinite period.
- On the 20th February 2014 Doka lodged a security interest in respect of the leases on the PPSR.
- On the 7th April 2014 Carrafa, Gountzos and Lofthouse (Liquidators) were appointed administrators of Relux and on the 16th May the creditors of Relux resolved that Relux be wound up.
- The Liquidators sought a declaration from the Court that interest in the formwork equipment vest in Relux in liquidation.
The Court held:
- That the leases were PPS leases because they were for an indefinite period and Doka was regularly engaged in the business of leasing goods.
- Interest in the formwork equipment vested in Relux (except leases which commenced on 26th February 2014 and 14 March 2014) because Doka did not register its security interest in respect of the leases within 20 business days of the commencement date of the leases nor within 6 months before Relux had appointed administrators.
- PPS leases are not just restricted to 90 day and 12 month leases. Leases with indefinite periods can be caught too.
- If the lessor fails to register its interest in the equipment on the PPSR within the latest of 20 business days of the date of the lease and 6 months before the lessee appoints administrators then the interest in the equipment may vest in the lessee upon its liquidation.
Important Note on Timing:
Although this was not discussed in the Relux Case, it is important to note the priority rules under the PPSA. In particular with a PPS lease of goods that are intended as inventory by the lessee the lessor must register its interest before the lessee takes possession of the goods.
If the goods are intended as non–inventory the interest of the lessor must be registered within 15 business days after the lessee receives the goods.
If the interests are registered correctly and within these time frames, then the secured party will have top priority in the goods. If the interest is not registered within these periods then a prior registered interest such as the interest of a bank with an all-present and after-acquired property interest (“fixed and floating charge”) over all the assets of the lessee (including those on hire) may come ahead of the interest of the lessor in the goods in the event of liquidation of the lessee.