The Supreme Court of Victoria has confirmed again that a lease of goods for an indefinite term, even if it can be terminated at any time, is a security interest within the meaning of the Personal Property Securities Act 2009 (Cth) (PPSA) where the lessor is regularly engaged in the business of leasing goods, and consequently, if it is not registered in a timely manner, such a security interest may be subject to the 'vesting' provisions of the PPSA and Corporations Act.
In Carrafa, Gountzos & Lofthouse v Doka Formwork Pty Ltd  VSC 570, the liquidators of a company sought a declaration that security interests in certain goods leased by the company had vested in the company by virtue of s588FL of theCorporations Act 2001 (Cth) and therefore the company now had a superior right to the leased goods than the lessor. The court held:
- The relevant leases were for an indefinite period ending only when the leased goods were returned. As the lessor was regularly engaged in leasing goods, the leases were each PPS Leases, and the lessor had PPSA security interests in the leased goods.
- No exceptions applied to the leased goods in question by virtue of their nature (pieces of formwork equipment).
- To avoid vesting under s588FL, security interests must be perfected by registration before the latest of:
- six months before the 'critical time', which in this case was when the winding up was taken to have begun; or
- the earlier of:
- 20 business days after the lease came into force; or
- the 'critical time'.
- The company's winding up was taken to have begun on 7 April 2014 when voluntary administrators were appointed.
- On their terms, each lease commenced when the relevant goods left the lessor's warehouse or when the company took delivery of it.
- In this case, in respect of one tranche of leased goods, the lessor was found to have registered its security interest more than 20 business days after the company took delivery of them.
- The lessor's security interest in that tranche of goods therefore vested in the company in liquidation. The effect of vesting was to extinguish the lessor's interest in the goods, giving the lessee superior right and entitlement to those goods.
In its judgment, the court observed:
[The PPSA] can lead to seemingly draconian outcomes, particularly where the property is valuable such as in this case where the Formwork Equipment was valued at over a million dollars… [I]n order to avoid these consequences, security interest holders can simply ensure they register their interests as soon as possible after they are granted.
The decision serves as a reminder to lessors of the importance of registering their security interests on the PPS register if they are not to risk losing their leased goods on an insolvency of a lessee.