Personal property securities get a makeover

After more than ten years of operation, the Personal Property Securities Act 2009 (Cth) (PPSA) and the Personal Property Securities Register (PPSR) are in line for a major overhaul.

The PPSA established a single, national set of rules of securing credit and other obligations using personal property.

The PPSA has a very long reach, covering most interests in personal property that secure the payment or performance of an obligation (regardless of the legal form and who has title to the property).  Such interests include general and specific security agreements, retention of title supply arrangements, leases, hire purchase and consignments, as well as asset transfers and trusts that secure the performance of an obligation. Certain lease, consignment and debt assignment transactions are also deemed to be security interests even if they do not secure payment or performance of an obligation. The Act applies to most types of tangible and intangible property including equipment, machinery, goods, inventory, building materials, extracted minerals and hydrocarbons, crops, livestock, ships, boats, aircraft, motor vehicles, shares, managed funds, financial instruments, accounts receivable, bank accounts, contract rights and intellectual property. The only significant exclusions from the Act’s coverage are land, water rights and mining and resource tenements and some other government licences.

Businesses that do not correctly perfect security interests that they hold (usually by registering on the PPSR) run the risk of losing their rights to collateral (being the property that is subject to a security interest) if:

• the grantor of the security interest becomes insolvent; or
• there is a competing security interest in the same collateral; or
• the collateral is transferred to a third party, even if the transfer is not permitted under the security agreement and the transfer occurs outside of the ordinary course of business.

Draft exposure bill released

A draft exposure bill to amend the PPSA has been released by the Australian Attorney General for public consultation. Subject to stakeholder views and Government approval, the Amendment Bill and proposed new Personal Property Securities Regulations will be introduced to Parliament.  Once Parliament approves the legislation to amend the PPSA, there will be a delay period for commencement to allow for administrative and operational change, including the build of a new PPSR.

The draft exposure bill indicates the Government intends to implement most of the recommendations of the 2015 Review of the PPSA. The 2015 Review made 394 recommendations, approximately 230 of which recommended changes to the Act while the balance either recommended no change or further consultation on particular issues. The proposed amendments are numerous and substantial.

Key changes to the PPSR registration process

Key changes should make the PPSR registration process easier, more flexible and less prone to user error without detracting from the fundamental objectives of the PPSA. The overhaul will:

• simplify the collateral classes for the purposes of registration. The 30 existing classes and sub-classes will be dramatically reduced to 6 classes that should be more intuitive to use;
• allow a single registration to be made against more than one collateral class. Currently each registration can only cover one collateral class;  
• simplify registration for collateral held on trust by the grantor of a security interest;
• no longer require a registration to distinguish between consumer and commercial property;
• no longer require a registration to indicate if collateral may include inventory;
• no longer require a registration to indicate whether a security interest is subordinated; and
• no longer require a registration to indicate whether the secured party is claiming a purchase money security interest (for example, sales subject to retention of title and the interest of a lessor under a lease or an owner under a hire purchase agreement).  PMSI priority will remain an integral part of the PPSA, it just won’t be necessary to flag a PMSI claim in a registration.

Other significant changes

Some of the other significant changes include:

• removing the concept of ‘chattel paper’ from the PPSA. Chattel paper financing, as practised in some other countries, has never been a significant part of the Australian commercial landscape so this change should streamline the Act without causing any material detriment;
• amending the concept of a ‘PPS lease’ to remove all references to ‘bailment’.  This should help clarify that the concept covers lease, rental and similar possessory interests of goods, where the person in possession pays the owner for the use of the goods, but it does not include the kind of bailment that occurs when a person has possession of goods merely to provide a service (such as transport, storage or repair) to the owner in respect of those goods. This change addresses an issue that has generated considerable uncertainty since the introduction of the PPSA; and
• removing the provisions in the PPSA that define ‘circulating assets’ and stipulate when they are subject to ‘control’.  The circulating asset provisions will be relocated to the Corporations Act, as the concepts are only relevant in the context of corporate insolvency, which is regulated under the Corporations Act.  There will be complementary amendments to the Corporations Act, including new definitions of ‘circulating asset’ and ‘circulating asset control’. The circulating assets provisions have never had any internal relevance to other parts of the PPSA but they have created endless confusion.

What it means for business 

The proposed amendments to the PPSA and the PPSR will make the legislation and the register easier to use and they should be welcomed by business and other stakeholders.  However, in the short term, they may also necessitate some changes to contracts, documents and IT as well as business practices and processes.

If you would like to learn more about the changes or discuss them with one of our PPSA experts, please reach out to one of us.