The Personal Property Securities Act 2009 (Cth) (PPS Act) has presented challenges to business owners in the three years since it commenced. The purpose of the PPS Act was to introduce one single user-friendly national regime for registering interests in personal property.
On 4 April 2014, just over two years into the regime, the Attorney-General announced a review of the PPS Act to gauge its impact, particularly on small businesses. Submissions made to the Attorney-General have highlighted the additional complexity and increased costs for SMEs and the confusion arising from poorly drafted special priority rules.
With the review well underway we thought it worthwhile to look at some of the problems encountered by small business owners and advisers under the PPS regime.
The submissions stressed the difficulty for SMEs to comprehend the PPS Act and its application to their circumstances. This has led to SMEs not obtaining many, or any, of the benefits of the PPS Act. There is also a continuing risk that SMEs will shy away from the PPS regime altogether.
Indications are that many SMEs do not even know that the PPS Act exists. This has been attributed in part to the misleading title and the fact that many business owners would not associate personal property with their own businesses.
Further difficulty arises when SMEs use the PPS Register. SMEs have called for the PPS Register to be more intuitive, to better allow for “ordinary” business owners with little expertise to navigate and understand how to use it.
With the new PPS regime in place, SMEs are now faced with the following options:
- paying for professional advice and associated systems of implementation;
- opting not to get advice and trying to navigate the processes themselves; or
- ignoring the PPS Act altogether and hoping it goes away.
These options all have the potential to cause detriment to SMEs. The greatest cost for SMES could be financial by lost goods and/or revenue.
SPECIAL PRIORITY RULES
Normally, purchase money security interests (PMSIs) under the PPS regime will provide “super priority” above and beyond all other security interests. Despite this, there are a number of special rules and exceptions that add layers of complexity. For example, special priority rules favour receivables financiers which might apply to the detriment of other financers. SMES need to be aware of the priorities which registration can offer to encourage the SME owners to take steps to register their security interests.
Also, timing of registrations to ensure priority is preserved is a key issue. Failure to register within statutory timeframes can result in significant loss for a client.