In February 2014, Australia and New Zealand Banking Group Limited (“ANZ”) appointed KordaMentha Pty Ltd (“KordaMentha”) as receivers and managers of the mining services firm, Forge Group Limited (“Forge”).
Forge had secured debts of approximately $500 million, including over $300 million owed to ANZ and other insurance bond groups such as QBE and Asset Insure.
KordaMentha has now decided to issue legal proceedings in the Supreme Court of New South Wales claiming that four gas turbines leased to Forge are subject to ANZ’s security interest and may be sold by them to recover ANZ’s debt.
The turbines are estimated to be worth $50 million. They were leased to Forge by APR Energy PLC (“APR”), a company listed on the London Stock Exchange, and always remained the property of APR. However, APR failed to register the leasing arrangement on the Personal Properties Security Register (“PPSR”).
As this case unfolds we will learn more as to why the gas turbines were not registered on the PPSR.
The consequence of not registering could mean that the gas turbines are subject to ANZ’s security interest, thus allowing KordaMentha to sell them and pay the $50 million in sale proceeds to ANZ. If there is anything left over after ANZ’s secured debt is fully repaid, then APR may still not be entitled to this amount and may have to fight it out with Forge’s other secured and unsecured creditors.
From what we know about the case it does not bode well for APR. A case was decided in April this year where KPMG had been appointed as receivers of BEM Equipment Pty Limited (“BEM”). In this case, the Supreme Court of Western Australia ruled that Spiers Earthworks (“Spiers”), who had leased about $1 million in plant and equipment to BEM under a hire purchase agreement, did not “perfect” their interest by registering the lease on the PPSR. Spiers lost their interest in the plant and equipment under the lease agreement and KPMG were free to sell the equipment to recover monies owing to National Australia Bank.
The Forge case is by far the largest legal proceedings that have been brought under the PPSA and is a salient warning to all equipment suppliers as to the potentially devastating implications if they don’t put in place robust procedures for PPSR registrations.