29 May 2017
PPSA – Australia’s hire industry is now largely out of the woods
Australia’s hire industry had been seeking relief from the draconian effects of the Personal Property Securities Act 2009 (Cth) (PPSA). The PPSA resulted in many hire businesses losing ownership of their equipment when they failed to register a hire on the Personal Property Securities Register and their customer became insolvent.
This problem affected both short term and long term hires, which could be deemed to be PPSA ‘security interests’ by being regarded as ‘PPS leases’. The ‘PPS lease’ definition has trapped and damaged hire businesses who have either been unaware of it, or have not managed to grapple with the complex registration regime. See our previous bulletins reporting some instances of this.
The Government has now acknowledged the overreach in the PPSA as originally enacted and has passed legislation to cut down significantly the scope of the ‘PPS lease’. The amendments are in the Personal Property Securities (PPS Leases) Amendment Act 2017 (Cth) which commenced on 20 May, 2017.
Under the amended law, hires only fall into the ‘PPS lease’ definition when:
- the agreed term including any options actually exceeds two years; or
- the hire actually extends for more than two years.
The two year threshold replaces the current one year term. Critically, the amendments also remove hires ‘for an indefinite term’ from the PPS lease definition. A hire for an unspecified term (so common in the hire industry) will now not be caught unless and until it actually lasts more than two years.
These changes vastly reduce the regulatory impact of the PPSA on typical short term hire and rental business.
The amendments don’t take the hire industry entirely out of the woods. The PPSA will still catch any hire which is, in substance, functioning as a security – such as a rent-to-buy or deferred purchase agreement and PPSA will still apply to finance leases written by the finance industry. And some hire agreements have been known to exceed two years. Those could still be caught.
The amendments are not retrospective and only apply to a hire entered into from the commencement of the new definition.
Hire businesses, especially those that only write short term business, should now consider whether it is necessary to register at all. Hire documentation may also be able to be simplified.
Bartier Perry is pleased to have assisted Australia’s peak hire industry body as its adviser in respect of PPSA including securing these important reforms.