On 22 September 2023, the Australian Government released its long-awaited response to the 2015 statutory review of the Personal Property Securities Act 2009 (Cth) (PPSA) and the Personal Property Securities Regulations 2010 (Cth) (PPS Regulations), often referred to as the Whittaker Review. The response sets out proposed comprehensive reforms, including changes to the PPSA and PPS Regulations as outlined in the exposure draft package. The proposed changes are significant, and will reduce complexity in the PPSA.
This article highlights some of the key practical measures that the Australian Government has proposed, some of which we anticipate may become contentious items for interested parties.
Highlights of what PPSA changes have been accepted
Of the 394 recommendations in the Whittaker Review, the Government has proposed to accept (in whole or in part) 345 recommendations (noting that a number of the recommendations were to make no changes, so in respect of those acceptances the Government is merely retaining the status quo). Some of the noteworthy proposals are set out below.
1. Removal of a number of concepts
Removal of certain concepts, references and definitions in the PPSA that have caused confusion or uncertainty. For example the removal of:
- the concept of "chattel paper" from the PPSA;
- all references to "bailments" in the definition of PPS lease; and
- the distinction between "consumer property" and "commercial property".
2. Clarification of certain rules
Clarification of certain aspects of the PPSA including:
- when a lease starts to be a PPS lease and must therefore be perfected;
- the rules relating to the registration of "purchase money security interests" (known as "PMSIs"):
- there will be a single timeframe of 15 business days to register PMSIs; and
- a secured party who has the benefit of a "PMSI" will no longer need to state that in their registration (the "PMSI box" in the registration form will be removed); and
- the rules relating to commingled goods and processed goods.
3. Wholesale replacement of the enforcement rules
It is proposed that the enforcement rules set out in Chapter 4 of the PPSA be replaced in full with a clearer enforcement regime. We will share our insights on these changes in the coming weeks.
4. Simplification of a number of existing concepts
Simplification of certain aspects of the PPSA including:
- amending the definition of motor vehicle to mean any item of property with a 17 digit vehicle identification number. Practically this will exclude many types of yellow goods. The Australian Government is further considering whether to establish a separate register for "construction and heavy industry machines";
- amendments to the definitions of "intermediated securities" and "investment instruments" and the rules relating to how security interests over such personal property can be perfected by control;
- amending the PPS registration process. For example:
- the number of collateral classes will be reduced from 9 to 6;
- subject to some exceptions, more than one collateral class will be able to be selected in one registration;
- all registrations will last for 7 years (other than where the grantor is not an individual and the secured party has used the collateral classes of All PAAP or All PAAP except (other than) – in which case the registration will last for 25 years);
- registrations of security interests over trust assets will not need to be made against the ABN of the trust but will instead be required to be made against the relevant details of the trustee. We expect that this will be an unhelpful change in the context of registrations against trusts administered by professional trustees (such as securitisation trusts, real estate investment trusts and funds) which manage thousands of trusts that grant security interests; and
- some of the "boxes" on the current registration form will be removed (eg. the inventory box and the PMSI box).
5. Extension and broadening of certain concepts
The extension of certain concepts under the PPSA including by:
- the broadening of the scope of the definition of "ADI" to capture authorised foreign banks;
- allowing sale and lease backs to be PMSIs if the grantor buys the goods from a supplier and sells them to a financier who pays for them directly to the supplier (so that neither the goods nor the purchase moneys "flow" through the grantor);
- allowing any security interest that replaces a PMSI to also be a PMSI to the extent that it secures "purchase money obligations", allowing flexibility in refinancing PMSI arrangements;
- categorising any security interest arising under a lease as a PMSI (irrespective of whether or not the lease is itself a PPS lease);
- allowing a receivables financier to be able to use the process in section 64 of the PPSA to get priority over not only suppliers of inventory who have registered their PMSIs but also over other secured parties who have registered security interests in the accounts and their proceeds; and
- a carveout to section 81. Under section 81 if a contract creates an account and contains a term that restricts that account from being dealt with (eg. from being assigned) then that term will not be effective against third parties. The new carveout will make any such dealings ineffective if the dealing would make performance of the contract "more onerous" for the account debtor. This change will be of particular interest to receivables financiers.
6. Stricter rules relating to registrations against individuals
The introduction of new obligations including an obligation on secured parties to remove registrations made against individuals within 5 business days of either being paid out or no longer being owed any obligations by the individual.
In addition, verification statements will need to be given to individuals in respect of motor vehicle registrations (as well as in respect of a number of other collateral classes).
The rejected changes
The Government has rejected 29 recommendations (a number of which appear to have been rejected after consultation with the States and Territories) and has rejected but clarified a further nine recommendations.
For example, the Government is not proposing to accept the recommendation to:
- delete the definition of fixture in section 10 (asserting that the recommendation has been superseded by case law);
- repeal section 588FL of the Corporations Act (which effectively gives a secured party 20 business days to register a financing statement against a company), though it has noted that it will give further consideration to how that section should be further amended;
- restrict the concept of "circulating assets" to only be the inventory of the grantor (other than inventory subject to a PMSI) or its proceeds. The provisions in the PPSA relating to "circulating assets" will be moved to the Corporations Act and will be, to some extent, clarified; and
- not require ADIs that have perfected their security interests over an ADI account by control to make a registration to confirm that they have "circulating asset control" over that account. Such registrations will still need to be made.
When would an amended PPSA come into effect?
If the amendment bills are introduced into Parliament and passed, the Government has flagged that there will be a "transition period" of at least two years. It has not finalised whether the amendments will:
- allow existing security interests to remain governed by the existing PPSA (rather than the new rules) and for existing registrations to remain on the existing PPS register (also referred to as "grandfathering"); or
- require all existing security interests to be "temporarily perfected" and transitioned across to the new rules and new PPS register.
Whichever approach is adopted, secured parties will need to consider the impact on any of their existing registrations and security interests and the way they conduct business going forward.