In this edition of It Depends, senior associate Alfred Jackson looks at whether assets held in a specific asset holding company are protected from creditors. This often depends on whether a PPS lease applies.
If it does and the lessor hasn’t registered its security interest, the leased assets can vest in the lessee’s trustee or administrator on the lessee’s insolvency, leaving the lessor as an unsecured creditor trying to reclaim its own assets.
Manage this risk by putting the arrangement in writing, ensuring it is registered and that PPSR timing requirements are met.
Video transcript
Hello, my name is Alfred and I’m a senior associate here in the commercial team at Cooper Grace Ward. And on this version of It Depends, I’ll be talking about whether or not assets held in a specific asset holding company are protected from creditors.
Are my assets that are held in a specific holding company protected from creditors?
It depends. One of the key questions is whether or not a PPS lease applies to the arrangement between the lessor and the lessee.
If a PPS lease does apply and you haven’t registered your security interest, there’s a real risk that, despite the fact the lessee does not own those assets, they may still be exposed to a creditor in an insolvency type situation.
What is a PPS lease?
So, what is a PPS lease? A PPS lease is a lease over most assets, where there is a term of two years or longer. That covers situations where there are successive option terms which take you over that two years, regardless of whether the options are exercised. It also covers situations where there is an indefinite lease, where the term actually ends up running more than two years.
The impact of a PPS lease arising, is that in an insolvency type scenario, if you haven’t sufficiently registered your interest in the PPS lease on the PPSR, those assets you are leasing will vest in the trustee or administrator as relevant. And you’ll be left as an unsecured creditor trying to reclaim your interest in those assets.
So, how do I protect my assets?
It depends. Typically, what you want to do is ensure that you have a written equipment hire position, which clearly sets out whether or not there’s a security interest in a PPS lease. If there is a PPS lease, you’ll also want to ensure that’s registered, and you’ll want to make sure that you comply with the timing requirements under the PPSR.
Thanks for listening to this edition of It depends. Please feel free to reach out to me, or anyone here in the team at Cooper Grace Ward if you have any further questions. Thank you.
