July 2014

PPSA update - new definition of 'motor vehicle'

The Federal Government has introduced the Personal Property Securities Amendment (Motor Vehicles) Regulation 2014.  The Regulation amends the definition of ‘motor vehicle’ set out in regulation 1.7(2)(b) of the Personal Property Securities Regulation 2010. 

The new definition is effective on and from 1 July 2014

On and from 1 July 2014, an item of personal property (that otherwise meets the terms of the definition of ‘motor vehicle’ in the regulation) will only be considered a ‘motor vehicle’ for the purposes of the PPSA if it is also:

  • capable of travelling at a speed of at least 10km/h, and
  • has one or more motors with a total power greater than 200 watts.

The former (pre-1 July 2014) definition of ‘motor vehicle’ covers goods that satisfy either of the above tests and so covered a very wide variety of items.  Note that for property to be a ‘motor vehicle’, it still also has to meet the other tests in the definition.

By combining the two parts of the definition (i.e. speed and power output), the Government intends that fewer items will come within the scope of serial number registration provisions. The scope of the shorter 90 day PPS lease threshold will also be reduced (although changes to the 90 day period are also in the pipeline but are not yet law – see our earlier bulletins).

Practical implications

Secured parties such as financiers, asset lessors, retention of title sellers, hire companies and businesses selling by consignment need to be aware of the new definition to ensure that registrations are made in the correct collateral class.  If a security interest:

  • is registered in the collateral class ‘motor vehicle’ when it should be registered as ‘other goods’; or,
  • is registered as ‘other goods’ when it should be registered as a ‘motor vehicle’,

then the registration is likely to be ineffective, which may result in loss of the asset on customer insolvency.

For some businesses, some goods will be ‘motor vehicles’ under the pre-1 July 2014 definition but will not be under the new one.  The goods will typically then fall in the collateral class ‘other goods’.   Small boom lifts or scissor lifts are a good example as they are normally too slow to pass the 10 km/h speed test in the new definition, but would have been within the pre-1 July 2014 definition because they have power greater than 200W.

A question arises as to the continued validity of registrations already made.  The change to the definition takes effect on 1 July 2014 and in our view should not affect the validity of registrations made before that time for hires entered into before that time.   The PPS Registrar advises that the new definition only applies to hires and other security interests entered into on or after 1 July 2014.  Unfortunately the Government has not introduced any specific transitional provisions to confirm this and it is not possible to state definitively that it is correct. 

It is clear that tor any hire commencing on or after 1 July 2014, the new definition should be applied. 

Example:

Tim’s Hire only hires out boom lifts.  Tim’s Hire has several boom lifts on hire to JoeCo Pty Limited, a local builder.  JoeCo is a repeat customer of Tim’s Hire and has an agreement with Tim’s Hire confirming the terms of any hire to JoeCo that may be entered into from time to time.

The existing hires are each for 14-18 month hire terms commencing on 1 February 2014.   Tim made a PPSR registration in the collateral class ‘motor vehicle’ on the date of commencement of the hires.

On 1 July 2014 boom lifts of the kind hired to JoeCo by Tim no longer meet the definition of ‘motor vehicle’, because of the definition change.  Tim considers there is no need to make a new registration in the class ‘other goods’ in respect of the existing hires.

Tim and JoeCo discuss in August 2014 some new hires and before arranging delivery Tim makes a new general registration against JoeCo in the collateral class ‘other goods’.   On 20 August 2014 Tim delivers for hire a new boom lift to JoeCo.  The new general registration in the ‘other goods’ class can protect that interest. The existing registrations in the ‘motor vehicle’ class (whether general or serial number) would not protect the new boom lift.

Searching

Businesses may also use the PPSR when they purchase, and in this capacity should also note that, when searching whether particular goods are the subject of a security interest, registrations may have been validly made using either the new or the old definition of ‘motor vehicle’.  It would accordingly be prudent to search against both ‘other goods’ and ‘motor vehicle’ collateral classes.

Example:

Tim’s Hire is looking at buying a used boom lift from Phil in August 2014 and wants to be sure that Phil hasn’t granted a security interest – to a finance company for example. 

The used boom lift would be a ‘motor vehicle’ under the pre-1 July 2014 definition but would not be a ‘motor vehicle’ under the new definition. 

Tim should search in the collateral class ‘other goods’ as well as in the collateral class ‘motor vehicle’ to make sure that he finds all registrations.  Valid registrations could have been made under either class depending on when the security interest was granted by Phil.


Author: Oliver Shtein