The Personal Property Securities Amendment (Deregulatory Measures) Act 2015 (Deregulatory MeasuresAct) received royal assent on 25 June 2015 and will soon become law (see discussion of timing below).
It amends the definition of 'PPS lease' in section 13 of the Personal Property Securities Act 2009 (PPSA). As a result, a lease or bailment of serial numbered goods (such as motor vehicles, watercraft (boats, ships) and aircraft) for a term of 90 days or more will no longer be deemed to be a category of security interest. The amendment made by the Deregulation Measures Act is not retrospective and does not affect leases or bailments entered into before the commencement date.
Background to the reform
Currently, the PPSA characterises a lease or bailment of serial numbered goods for a term of 90 days or longer, as a security interest. If the owner of the goods does not register under the PPSA in a manner that is effective for that security interest, it will lose its rights to the goods on insolvency of the hirer. It can also be postponed to other secured creditors of the hirer.
The inclusion of such a broad category of security interest raised a number of concerns amongst stakeholders. In particular, small and medium equipment hire businesses expressed confusion over the complexity of the registration requirements. They also complained of the high compliance costs associated with demystifying registration rules and observing all necessary registration requirements. Unsurprisingly, the reform is therefore adopted as part of the Abbott Government’s deregulation agenda to cut 'red tape'.
The Deregulation Measures Act will come into effect on the commencement date (currently 25 December 2015 unless an earlier date is fixed by proclamation. There has been no proclamation at this stage. We will publish an update following a proclamation). From the commencement date, only a lease or bailment of goods for a term of one year or more, or an indefinite period, will be characterised as a security interest.
If a hiring will be for a period of less than 12 months it will be possible to stipulate the term of the hiring. So long as the arrangement cannot be renewed, and is not (in fact) extended, beyond the date that is 12 months after the term of the hiring commences, it will not give rise to a security interest. The Deregulatory Measures Act should therefore substantially reduce the number of transactions that give rise to a security interest under the PPSA. It will therefore reduce the compliance costs associated with registration. The Commonwealth Government estimates this will save businesses $11.2 million annually.
In anticipation of the change, businesses should review (and if appropriate amend) their:
- conditions of hiring (in particular to ensure that the term of the hiring is specified), and
- PPS policies and practices, to ensure that they are not making unnecessary registrations following the commencement of the new rules.
Businesses should also ensure that if a registration is not made, the term of the hiring does not exceed 12 months.