Attorney-General Robert McClelland, has today introduced a bill in Federal Parliament to create a comprehensive national personal property securities law, to be known as the Personal Property Securities Act (PPSA). The bill is the culmination of more than three years of public consultation and is a significantly revised version of an exposure draft bill that was the subject of a report by the Senate Standing Committee on Legal and Constitutional Affairs in March of this year.
The PPSA will be supported by a referral of power from the States. Last week, New South Wales became the first State to formally refer their power in this area to the Commonwealth.
The proposed PPSA and the register to be established under it (PPS Register) are intended to replace the myriad of existing Commonwealth, State and Territory laws and registers for company charges, bills of sale, motor vehicle securities, crop liens, stock mortgages and most other securities affecting tangible and intangible personal property rights.
These reforms will not only rationalise the number of laws and registers for personal property securities, they will also introduce major substantive changes to the current law which will be particularly important for creditors, equipment lessors, consignors and other retention of title suppliers, purchasers of accounts receivable and insolvency practitioners.
With limited exclusions, the PPSA will apply to all security interests in tangible and intangible personal property. Personal property is any kind of property other than land, water rights or a right, entitlement or authority that is granted by a Commonwealth, State or Territory law and declared by that law not to be personal property for the purposes of the PPSA.
The PPSA adopts a functional approach to ‘security interests’. This means any interest or right in relation to personal property provided for by a transaction that in substance secures payment or performance of an obligation will be a security interest for the purposes of the legislation regardless of its form or who has title to the collateral (i.e. the secured property).
In addition to the broad functional definition, the PPSA will also deem certain interests or rights in relation to personal property to be security interests whether or not they secure payment or performance of an obligation. Deemed security interests will include:
- interests or rights of a lessor under certain leases
- interests or rights of a transferee in a transfer of accounts receivable or chattel paper (a new concept in Australia which includes leases and hire purchase contracts)
- interests or rights of a consignor under a commercial consignment.
Benefits of reform will include:
- A legislative framework that is consistent and comprehensive in contrast to the current arrangements.
- Simpler documentation and registration procedures including a 24/7 on-line register allowing greater flexibility and innovation in product development and on-line transactions.
- Greater ability to harness intangible assets such as intellectual property, receivables, contract rights and licences to secure credit.
- Greater certainty in insolvency and for the holders of competing security interests.
The new regime should result in greater transparency, improved risk management, more certain priority outcomes, business process efficiencies and cost savings but in the short term it will require a careful review of documents, credit policies and procedures and IT systems by financial institutions, other lenders, equipment lessors and retention of title suppliers.
While the official target date for commencement of the PPSA and operation of the PPS Register remains May 2010 the Government is considering revising this timeframe in consultation with the States and Territories.