PPSA Reforms Change On The Horizon

THE AUSTRALIAN GOVERNMENT IS PROPOSING TO AMEND THE PERSONAL PROPERTY SECURITIES ACT AND REGULATIONS TO ACHIEVE “A CLEARER, MORE CONSISTENT AND MORE ACCESSIBLE PPS FRAMEWORK”.

Background In 2012, the PPSA introduced a national regime for the creating, registering and enforcing personal property securities. While the intent of the legislation was to simplify securities law, replacing over 70 Commonwealth, state and territory laws and 40 registers, numerous concerns have been raised by industry stakeholders about the overall complexity of the PPSA.

The Big Review

In 2015, Bruce Whitaker was commissioned to review the PPSA (the Whitaker Report). The Report found the PPSA was complex and unclear and made 394 recommendations. However, since its submission in 2015, only a small number of amendments have been made.

Government response

On 22 September 2023, the Government provided its proposed response to the Report. Of the 394 recommendations, they propose to accept 345, some in full and some in part.

Changes to the PPS Register — welcome news or not?

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, which will be welcome news for many HRIA members. While 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 a registration being ineffective, or the failure to tick a box (such as the PMSI box) could result in a loss against competing creditors. Due to the complexity and uncertainty surrounding the registration process, there has been a practice where parties make multiple or duplicate registrations in respect of the same collateral, resulting in ‘clutter’ on the Register. Some high-profile businesses have fallen foul of the Register, inadvertently losing assets in circumstances where they either failed to register their interests, or the secured party registered against the incorrect identifier of the relevant grantor (Forge Group and OneSteel). Only time will tell if the proposed reforms, once enacted, achieve the stated intention of making the PPS Register more user friendly.

Proposed amendments likely to take effect

A number of amendments have been accepted by the Government. These include:

• clarifying the types of property that are excluded from the PPSA
• removing confusing concepts (‘chattel paper, bailments and distinction between ‘consumer’ property’ and commercial property’ for example)
• 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
• removing the requirement to register against a trust’s ABN, where the relevant assets are held by a trust
• 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 amendment demands
• clarifying the rules relating to registration of a PMSI.

The PPS Lease

The Bill seeks to introduce a new section 13 with respect to PPS Leases. While it replicates the length of lease periods that were in the old section, it seeks to clarify when a lease starts to be a PPS Lease.

Key recommendation rejected

One of the key recommendations made by the Whitaker Report (that has not been accepted by the Government) was the repeal of sections 588FL and 588FM of the Corporations Act 2001. Under section 588FL, security interests granted by a company must be registered within 20 business days of the security interest arising. If not, and the company enters into administration (including liquidation) within 6 months of the 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 section 588FL is said to serve an important purpose of discouraging and protecting against fraudulent registrations made prior to a company’s insolvency. Interestingly, there has been no recommendation to amend section 588FN of the Corporations Act 2001, with respect to its continuing reference to the very narrow exception originally granted for PPS Leases (serial numbered goods), despite this reference no longer existing in the PPSA.

Public consultation and the HRIA

The Government has invited public consultation on the proposed reforms. Feedback is sought on whether the proposed reforms will meet the needs of all stakeholders in the current commercial environment. The HRIA submitted its feedback during the consultation period and will be meeting with the office of the Attorney General in the first quarter of 2024.