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Getting PPSA compliant – don’t wait
PPSA
10 | HIRE
AND
RENTAL
NEWS
| NOVEMBER 2012
INDUSTRY IN FOCUS
There has been a lot of anxiety caused by
the PPSA
Yes there has
–
and nowhere more so
than in the hire industry. PPSA is such a
complex piece of law and the consequences
of getting it wrong are really very harsh for
hire businesses. They are at risk of losing
their capital; the equipment they own or
have finance on. I can’t think of any sector
on which the new law has a harsher effect.
So while PPSA is I think a good reform in
the finance sector, where it puts a uniform
scheme in place of what was really a very
confusing patchwork, it has overreached in
applying to the hire industry.
How is the hire industry coping?
It is uneven. Some businesses are well on
top of it now. But also, unfortunately, a lot
of hire businesses haven’t really grappled
with PPSA at all yet. In some cases this may
be a conscious decision that the trouble
of complying outweighs the risks, which
is fine. But my sense of it is this is only
relevant in the minority of cases.
We have seen many businesses take
some steps towards PPSA compliance,
but are still at risk because they haven’t
mastered the complexity. The PPS register
is very unforgiving. If you tick the wrong
box or are a few hours late in making
a registration, the registration may be
worthless. And hire businesses also have
to wrestle with the ABN system and the
identification of their customers (including
any trusts) in a very precise way - something
they have never had to do before.
There are many traps in the whole
system. It seems for every rule there is an
exception or a qualification. For example,
one of the worst things about PPSA for
hire businesses is the possible vesting of
equipment in the insolvent customer.
Somewhat incredibly, one finds a vesting
rule not only in the PPSA but also in
the Corporations Act. Like all complex
commercial law reform it seems the small
business may suffer the most because of the
time and cost in coming to grips with the
regime.
On the positive side, the hire businesses
that do make the effort to understand
the new law and put in place the right
systems and training will certainly be
able to reduce PPSA to just another set of
routine procedures. They will probably end
up with better documents and a better
understanding of who their customers are,
but I wouldn’t say they balance out the
detriments to the industry.
Tell us about the problem of ‘noise on the
register’
The system is creating a lot of
registrations, many of which are incorrect
or too broad. These are cluttering up the
register and chewing up a lot of time.
I have heard the record for a number
of registrations against one company is
something like 10,000.
All of these registrations have to be read
and managed when it comes time to sell
assets or refinance. For example, say you are
looking to buy a pump. You might search
the register and see a number of widely
worded registrations that could mean that
pump is subject to a security interest. So
you’ll have to sift through them and contact
the secured parties to be sure you aren’t
buying that pump subject to someone
else’s interest. The same issue arises when
businesses are refinancing with a bank,
because the bank will see the registrations
and want to be sure they don’t affect its
security position.
So not only do you have to manage
registrations against your customer, you
need to keep your eye on what others have
registered against you.
How does PPSA change the
documentation of hires?
A big part of PPSA is hires must be
evidenced in writing. There are specific
requirements for this. You simply cannot
perfect an oral hire under the new law.
So if you have a customer who has gone
into administration or liquidation and you
don’t have evidence of your hire in writing
you can lose title to your equipment even
if you do have a PPS registration in place.
Showing ownership is not enough anymore.
We’ve recommended hire businesses
engage customers in a master agreement
that governs all hires. This gets the
documentation job out of the way in
a structured way and only minimal
documents are needed for all subsequent
hires. There are also some specific PPSA
provisions that will be useful to most hire
businesses.
There seem to be many uncertainties in
PPSA
Yes there are uncertainties. One of the
biggest is the real extent of transitional
protection. A lot of hire businesses have
assumed if you had a customer pre-PPSA
and continued dealing with them you’d
be protected by the two year transitional
protection.
But in many cases that is not a safe
assumption. You’d really need to be able
to point to a binding pre-PPSA agreement
that covered your post PPSA hires. But most
hire businesses didn’t really work like that
pre-PPSA. They tended to make agreements
on a hire by hire basis.
This issue is emerging in a couple of
insolvency administrations in the context
of stock on retention of title. WOW Sight
and Sound is one that comes to mind. The
Courts will have to decide the required
degree of connection to a pre-PPSA
agreement. I think there will be some
disappointed suppliers and hire businesses
in many cases.
When do you think these sorts of things
will be clarified?
Not quickly. The legal wheels grind
slowly. There has so far been only one
decided Court case I am aware of that even
mentions PPSA. That involves the Hastie
Group insolvency. The administrators of
Hastie found a lot of equipment unclaimed
even after they tried to contact the
companies that had registered against
Hastie on the PPSA. Of course some of
Oliver Shtein
Oliver Shtein of Bartier Perry, a Sydney-based law firm, has been working
with the HRIA preparing and updating legal advice on the PPSA and a
guidance note to help members manage the legislation change. Bartier Perry
has assisted many large and small hire businesses with PPSA issues.