Liberal Senators' Minority Report
Timing and unresolved issues
1.1
Liberal senators acknowledge that this bill is a considerable
improvement over the exposure draft considered by the committee during the last
inquiry. However, Liberal senators do not consider that enough time has been
allowed either for the committee to conduct an adequate inquiry into this
complex and important bill, or for stakeholders to be consulted about it. Indeed,
it appears from the evidence received by the committee that although the
exposure draft was extensively redrafted to produce the current bill, there has
been little if any consultation by the department with stakeholders on the new
version of the bill.
1.2
It is clear that the bill will require amendment, but as was apparent
during the committee's public hearing, the extent of amendments required is
only partially known. The evidence of departmental officers in the final two
hours of the committee's public hearing on the bill was, of itself, telling:
We have also handed up a few minutes ago a list of matters
which we thought we might take you to. They are under different headings:
matters that we think might warrant further consideration; questions on
drafting issues that arise in relation to various clauses of the bill; matters
which we think might warrant further discussion with stakeholders; matters that
have come up in the context of the committee’s consideration that will need to
be dealt with in regulations.[1]
1.3
In short, the department itself was acknowledging that there are
unresolved technical issues. Yet the committee is being asked to sign off on
this bill before its final form is known, a most unusual step.
1.4
Liberal Senators are also concerned that key stakeholders have indicated
that they need more time to come to terms with the bill, and have been critical
of the timetable forced by the government. For example, Ms Flannery, a partner
at Clayton Utz who had previously been supportive of the general thrust of the
reform, told the committee that the new draft of the bill should have been made
available for a longer period:
Even an additional month would still have enabled the
legislation to be passed this year and might still allow some rats and mice
amendments to be made that would at least clarify some things. For example, in
relation to the priority time in section 55 a couple of words dropped out from
that section which I think, from discussions with the Attorney-General’s
Department, might not have been intended to drop out. If we just had a bit more
time to go through the legislation because it is so different, at least on the
order of setting out and some drafting, that would be quite beneficial.[2]
1.5
Similarly, the submission of the four law firms stated that:
We accept that decision has been made on policy to implement
the Bill on substantially the terms proposed. Nonetheless, we have some
concerns that in a number of areas the drafting of the Bill is not meeting its
policy objectives and can have serious consequences.[3]
1.6
The submission listed principal concerns about the bill but cautioned
that:
This is not a comprehensive list. We are concerned that, in
view of the amount and significance of the changes, and the limited time, there
are many other points that we and others will have missed...
This is significant legislation which will fundamentally
change private commercial rights and financing practice. While we acknowledge
that the Act will be reviewed after three years, significant damage can be done
in the meantime, at a time in the cycle when the ability of financiers to take
security, and the operation of financial markets, are crucial. It is critical
to get it right the first time, there is no urgency, and we strongly urge the senate
committee to repeat its initial recommendation to take time to get it right.[4]
1.7
Liberal Senators are particularly concerned that consultation with small
and medium business has not been adequate, although it must be acknowledged
that this not necessarily through any fault on the part of the department.
However, the bill will, if passed, pose significant risks for some businesses
and individuals if they are not aware of its implications. For example, the
committee asked the representatives of the four law firms about issues relating
to the registration of security interests for the farming community. Mr Loxton
of Allens Arthur Robinson used the example of a farmer delivering a shipment of
hay to a bulk exporter:
...the view is that, if the farmer is delivering the hay in
advance of payment and has a contract with the buyer that the farmer will
retain title to the hay until he or she is paid, that is security interest as
defined and something the farmer will need to register in order to be
protected.[5]
1.8
On the same point, Mr Lowden of Freehills elaborated that it would no
longer be enough for the farmer to simply rely on an invoice, and if they did,
there was a risk in some circumstances that they could lose title to their
goods, without payment:
Assuming that it is treated as a security interest at the end
of the day, one consequence of the formality requirements in clause 20 is that
it will not be enough for the farmer or some other supplier to deliver under an
invoice and just rely on the fact that the purchaser took delivery; they
actually need to get it signed. So there is an additional hurdle that suppliers
will need to jump even if they go off and register. So they have put the world
on notice as to the existence of a security interest. The requirement for
signing can mean that they lose their title to the goods.[6]
1.9
Mr Lowden did acknowledge that the bill could also be of benefit to
farmers:
On the other hand, the rules on commingling, as Mr Loxton
referred to earlier, are potentially of benefit because they mean that, if they
validly establish an interest, they do not necessarily lose their interest
simply because they cannot identify which was their bit of wheat.[7]
1.10
What is clear to Liberal Senators is that education of those who are
affected about their rights and what they must do to protect their interests is
going to be of absolute importance if major injustices are not to result. This
point was made to the committee by representatives of the combined law firms:
Mr Loxton- but I think the general observation is that this
bill, while it weakens what we think is one of the standard forms of charge,
tips the scales in favour of those people who are sophisticated financiers who
protect their interest against those who are not aware of the need to protect
their interest and to go through all the various steps.
Mr Stumbles- So the point to respond to is that, for small
business and farmers, the educational piece for both of those sets of interest
groups is going to be quite significant.[8]
1.11
The transitional arrangements also need to protect the interests of
small business operators as well as farmers and others who are not fully up to
speed with the requirements of the bill if and when it becomes law. This
particularly needs to include circumstances where retention of title issues
might arise.
1.12
Nonetheless, Liberal Senators acknowledge that some significant
stakeholders also wish to see the current timetable for the introduction of the
reform adhered to, to allow them to put in place the necessary changes to their
systems before the changes implemented by the bill come into effect. For
example the ABA told the committee that:
The ABA’s concern is to ensure that the timetable that this
reform is currently on stays on that timetable. We were very appreciative of
the committee’s recommendation that the commencement date be extended to May
2011. That gives our members the opportunity to settle in and develop in a
realistic time frame the sorts of changes that they need to make and which they
and their customers will benefit from in the fullness of that time. So, yes, we
are happy to see those technical issues sorted out and resolved to the
satisfaction of parties but staying with the current timetable that the
government has adopted for this reform.[9]
Conclusions
1.13
It is clear that the bill will require major amendments before it
becomes law, and that time needs to be allowed for consultation with
stakeholders before these changes can be finalised. The favoured means of
achieving the necessary changes appears to be the introduction of a
consequential amendments bill to make the necessary changes. Substantial
details of the new personal property arrangements are also to be introduced by
way of regulations which have also yet to emerge.
1.14
Liberal Senators do not consider that it would be responsible to agree
to this bill until the changes to be made in the consequential amendments bill
are available to stakeholders and to the Senate. Similarly, the draft
regulations should also be made available. Only then will it be possible to see
if the concerns raised by stakeholders and the committee have been addressed adequately.
1.15
Liberal Senators emphasise that it is not their intention to obstruct
this important reform, but only to ensure that the government "gets it
right".
Recommendation 1
1.16 Liberal Senators recommend that the government and the department
conduct further consultations on the bill until the end of September 2009, and
that at the conclusion of that process, the government introduce a
consequential amendments bill.
Recommendation 2
1.17 Liberal Senators recommend that the government and the department
release the revised draft regulations for public consultation as soon as
possible.
Recommendation 3
1.18 Liberal Senators recommend that on introduction of the consequential
amendments bill, the Senate refer that bill, together with the proposed
regulations, to this committee for inquiry and report.
Recommendation 4
1.19 Liberal Senators recommend that the bill not be passed until the
committee's report on the consequential amendments bill and the regulations has
been presented, and that the Senate debate the bill and the consequential
amendments bill together.
Recommendation 5
1.20 Liberal Senators recommend that the government develop and implement a
comprehensive education campaign for small to medium business and others prior
to the start-up date for the new personal property securities system.
Senator Guy Barnett
Deputy Chair |
Senator Mary Jo Fisher |
Senator Russell Trood
|
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