PPSA reforms – Change on the Horizon
The Australian Government is proposing to implement a number of amendments to the Personal Property Securities Act 2009 (Cth) (PPSA) and its accompanying Personal Property Securities Regulations 2010 (Cth) (Regulations). It is said the reforms “will achieve a clearer, more consistent, and more accessible PPS framework”.
The PPSA commenced on 30 January 2012, introducing a national regime for the creation, registration and enforcement of personal property securities. While the intent behind the legislation was to simplify securities law by replacing over 70 Commonwealth, state and territory laws and 40 registers, since its commencement, there have been numerous concerns raised by industry stakeholders about the overall complexity of the PPSA.
The Big Review
In 2014 Bruce Whitaker was commissioned to provide a review of the PPSA. He submitted his final report to Government following extensive consultation with stakeholders (Whitaker Report). Broadly speaking, the Whitaker Report found that the PPSA was complex and at times unclear and made 394 recommendations. However, since its submission in 2015, there have only been a small number of amendments to the PPSA (most notably, amendments in 2015 and 2017 to the definition of a PPS lease in section 13).
The Government Response
On 22 September 2023, the Government provided its (long awaited) proposed response to the Whitaker Report. Of the 394 recommendations, the Government proposes to accept 345, some in full and some in part. The proposed amendments to the PPSA are contained in an exposure draft of the Personal Property Securities Amendment (Framework Reform) Bill 2023 and proposed amendments to the Regulations are contained in the proposed Personal Property Securities Regulations 2023.
The Consultation Paper released by the Government notes that a key focus of the proposed reforms is to reduce the complexity of the PPS Register. This will be welcome news for many regular users of the PPS Register. Whilst seemingly simple, the process of registering a finance statement contains traps for the unwary, where, for example, the failure to correctly identify a grantor could result in the registration being ineffective, or the failure to tick a box (for example, the PMSI box) could result in a loss of priority as against competing creditors. Due to the complexity and uncertainty surrounding the registration process, there has developed a practice of secured parties making multiple or duplicate registrations in respect of the same collateral, resulting in ‘clutter’ on the PPS Register.
There have been some high-profile examples of businesses falling foul of the PPS Register, inadvertently losing their assets in circumstances where they either failed to register their interests on the PPS Register, or the secured party registered against the incorrect identifier of the relevant grantor (the Forge Group and OneSteel cases). Only time will tell if the proposed reforms, once enacted, achieve the stated intention of making the PPS Register more ‘user friendly’.
Highlight of what proposed amendments are likely to take effect
By way of overview, a number of amendments have been accepted by the Government which include:
Clarifying the types of interests and types of personal property that are excluded from the PPSA
Removal of a number of concepts that have caused confusion (‘chattel paper, bailments and distinction between ‘consumer’ property’ and commercial property’)
Amending the definition of ‘motor vehicle’ to mean property with a vehicle identification number (VIN)
Reducing the number of collateral classes from 9 to 6 to streamline registration requirements
Where the relevant assets are held by a trust, there is no longer a requirement to register against the trust’s ABN
Clarifying when a lease of goods for an indefinite term becomes a PPS lease
Removing the requirement for the Purchase Money Security Interest (PMSI) box to be ticked in a financing statement
Removing the ‘inventory’ tick box from the PPS Register
Amending the process for making of amendment demands
Clarifying the rules relating to registration of a PMSI
Allowing any security interest that replaces a PMSI to also be a PMSI to the extent that it secures "purchase money obligations". This will permit flexibility in the refinancing of PMSI arrangements.
The Explanatory Memorandum provides that in respect of the new section 13 which provides the meaning of a ‘PPS lease’, the changes are intended to provide certainty so as to reduce any regulatory burden on affected industries, including the hire and rental industry.
A key recommendation rejected
One of the key recommendations made by the Whitaker Report (and that has not been accepted by the Government) was the repeal of sections 588FL and 588FM of the Corporations Act 2001 (Cth). Under section 588FL, security interests granted by a company must be registered within 20 business days of the security interest arising. If they are not, and the company enters into external administration (including liquidation) within 6 months of the security interest being registered, then the security interest vests in the grantor company. Section 588FM allows the Court to extend the time for registration of security interests in limited circumstances.
The Government’s rationale for rejecting the recommendation for those sections to be repealed is that section 588FL is said to serve an important purpose of discouraging and protecting against fraudulent registrations made prior to a company's insolvency.
The Government has invited public consultation on the proposed reforms. Feedback is sought on whether the proposed reforms will meet the needs of lenders, consumers and businesses, especially small business, in the current commercial environment.
The consultation period closes on 17 November 2023.