PPSA - light at the end of the tunnel for the hire industry?

The Whittaker Review of the Personal Property Securities Act 2009 (Cth) (PPSA) has published its Interim Report.  In an earlier bulletin, we reported on the submission made to the Review by the Hire & Rental Industry Association.  Bartier Perry is assisting the industry with the Review.

The Interim Report falls short of recommending any specific reform, instead proposing further consultation.

Almost without exception it was submitted by those participating in the Review that the PPSA is unduly complex and unforgiving.  This complexity operates as a natural bias against small businesses and those not skilled in security interest concepts and processes.  The Interim Report found:

…..financial institutions and large companies were prepared for the Act when it commenced practical operation in January 2012.  The same cannot be said, however, for smaller businesses.  Despite the education efforts that had been undertaken by Government in the lead-up to the commencement of the Act, many small businesses were not ready.  Many remained quite unaware of the Act, and of the impact that it could have on their business.  Some unfortunate business-owners first learned of the Act when they discovered that they had lost ownership of their property to an insolvent customer, because they had not perfected their interest in their property under the rules set out in the Act.

It appears that the Review is alive to the matters pointed out by the hire industry (many of which were echoed by others making submissions) and to the losses being suffered by hire businesses which have not mastered its complexities.

The hire industry has essentially sought the exemption of ordinary hire from the ambit of the PPSA. The Interim Report notes:

I am however alive to the concerns expressed by the hiring industry in particular, and understand why they query whether the Act should apply to short-term hiring arrangements of the type that is the mainstay of their business.  Rather than exempt specific activities, though, my preferred approach is to step back from the existing detail of the Act and ask what it is that we think the Act should apply to as a matter of principle, rather than the more detailed question of what it should not. 

The Report also notes another perspective of that policy evaluation:

One of the key "mischiefs" that is the target of legislation such as the Act is the
so-called "evil of apparent ownership" – the risk that a third party may be misled by the apparent owner of property into believing that the apparent owner can give the third party a better interest in the property than is actually possible.  This risk can arise if the third party has no independent means to determine whether another person might already hold a conflicting interest in the property. 

There is no imminent quick fix to the issues affecting the hire industry.  But it is encouraging that the Interim Report sees the need to ‘step back’ and revisit the policy of the PPSA in relation to hire. 

The hire industry’s submission to the Review on that broader question of the ‘evil of apparent ownership’ might be summarised as follows:

  • In Australian business practice, there has never been an assumption that customers of hire businesses own the equipment they deploy.  Indeed in the construction sector (the hire industry’s biggest customer) a completely opposite assumption operates.  Use of hired equipment is ubiquitous and well understood.
  • Even if the ‘evil’ existed, it could never be completely eradicated and drawing arbitrary lines around it (the 90 day or 1 year PPS lease threshold) only leads to increased risk to hire businesses.

More fundamentally, we think Government must compare two evils – the alleged evil of apparent ownership with the evil (now manifest) of complex legislation that deprives hire businesses of ownership even where a simple mistake in registration is made.  

In working with hire businesses we are seeing many who arrive too late for us to help prevent damage by PPSA.  Unfortunately, we can predict that some hire businesses will be destroyed by it.

The final report and recommendations of the Review are to be presented to the Government by 30 January 2015.

Author: Oliver Shtein