The Personal Property Securities Act 2009 (PPSA) required a review of the operations of the Act to be undertaken within 3 years of its implementation. The review recognised that there were various aspects of the legislation that would need time to work their way into the corporate consciousness of Australian businesses and an assessment of industry understanding of the PPSA was an appropriate mechanism to ensure compliance and ongoing protection.
The review received 37 submissions. Consideration of those submissions confirms that understanding and implementation of the registration process has not been easy, especially for small business.
A number of clear problems were identified:
- The low level of awareness and understanding of the PPSA by small business generally.
- The regime appears somewhat complex and the use of new terminology was identified as particularly problematic.
- The operation of the Act and rights attached to registration were identified as issues that required some clarification. Many of the concerns are summed up in an observation made in the interim report wherein it was stated:
“Whatever the reasons for the confusion and complexities in the Act, they have made the Act very hard to work with, even for specialists in the field but particularly for businesses, including small businesses. This is exacerbated by the fact that the complexities compound each other, by being cumulative rather than independent – the unfamiliar terms and uncertain concepts are used in complex provisions, in a way that can make it even more difficult to determine how those complex provisions interrelate with each other. The cumulative effect is that the Act can be very difficult to understand, and to work with. It is clear that much can and should be done to streamline the Act, and to align it more closely with the realities of the market place that it applies to.”
We have advised and acted for many clients in relation to the application of the PPSA and assisted them in relation to the registration process. Our anecdotal evidence supports the observations made in the interim report. The fundamental shift in the concepts of “ownership” and “retention of title” have been difficult for small business to come to grips with. Understanding definitions of inventory, PMSI, general security agreements, and the myriad of other terminology that needs to be understood to properly register an interest have caused great confusion and misunderstanding.
There are also processing difficulties. The question of when registrations needs to occur and the severity of improperly registering a security interest have increased the risk that some clients face if they embark upon the registration personally and without full understanding of the concepts and terminology used. Priority in relation to their security interests is jeopardised if they inadvertently make an error, or mistime, their registration.
The final report is due to be handed down by the end of January 2015. It is proposed that further discussion papers will be issued. They will deal with some of the more technical aspects of the legislation including the modes of perfection, priority rules, the way in which security interests can be enforced, the way in which security interests can be created, how collateral is to be dealt with and, more generally, what transactions the Act applies to.
The initial indications are that clarification will be required in respect of a number of aspects of the legislation and that a more simplistic and understandable approach may need to be adopted if business, particularly small business, is to fully engage with the new regime.