Bills Digest no. 104 2014–15
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WARNING: This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Tyler Fox and Jonathan Chowns
Law and Bills Digest Section
13 May 2015
Contents
Operation
of the Personal Properties Securities Act 2009
Purpose of the Bill
Background
Committee consideration
Statement of Compatibility with Human Rights
Policy position of non-government parties/independents
Position of major interest groups
Financial implications
Key issues and provisions
Concluding comments
Date introduced: 19
March 2014
House: House of
Representatives
Portfolio: Attorney-General
Commencement: The
earlier of a single day to be fixed by Proclamation or six months after Royal
Assent.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent, they
become Acts, which can be found at the ComLaw
website.
Personal property includes tangible and
intangible property, other than real property. Examples are motor vehicles,
household goods, business inventory, intellectual property and company shares.
Personal property over which security is taken is commonly called collateral.
A security interest is an interest in
personal property that secures payment or the performance of an obligation.
Examples include motor vehicle finance arrangements, where the
lender takes an interest in the vehicle to secure repayment of the loan; or a consignment
of a painting to be sold at an auction house.
The Personal Properties Securities Act 2009 (the PPS
Act)[1]
established the Personal Property Securities Register, an
authoritative public register of securities held over personal property (the register).[2]
The register provides a way for a person to establish whether there are
pre-existing interests in particular personal property over which they are
considering taking an interest to secure a loan or other obligation.
The status of some types of leases under the general
statutory definition of security interests is uncertain. To
remove the uncertainty, the PPS Act currently deems certain leases to be
security interests. These are called PPS leases.
The Personal Properties Securities Amendment (Deregulatory
Measures) Bill 2014 (the Bill) makes a minor amendment to the PPS Act to
remove one kind of PPS lease from the coverage of the Act. They are leases of serial numbered goods of 90 days or more. Leases of this
kind are generally for motor vehicles and equipment.
The removal of these kinds of leases from
the coverage of the PPS Act is to reduce the compliance burden on small
and medium sized equipment and vehicle leasing businesses. This comes at the
expense of the protection afforded by registration under the PPS Act. Affected
leasing businesses will, if necessary, have to establish ownership of their
goods by other means, including by reliance on lease agreements. This
rebalancing has been sought by affected businesses.
Leases of more than one year—including
for serial numbered goods—will remain covered by the PPS Act.
Justice Davies of the Federal Court gave a broad conceptual overview
of the PPS Act:
Under the legislative framework of the PPSA, there is now a
set of common rules for the regulation of all security interests in personal
property, and a centralised registration system. Conceptually, the new regime
under the PPSA model is relatively straightforward, at least in relation to the
rules for creating security interests and the priority rules for competing
security interests. At the core of the PPSA is a statutory concept called the
"security interest" which does not need to be a security instrument
in legal form provided that it is "in substance". A person who holds
a "security interest" in "personal property" may
"perfect" the security to preserve a position of priority should a
dispute between competing security interests arise. A security interest is
"perfected" if it has "attached" to "collateral",
it is enforceable against third parties and it has been registered or the
secured party has control or possession of the collateral. Registration, I
think, is intended to be the main form of "perfection", serving as
the means by which third parties can be put on notice of secured interests and
providing a measure of protection for third parties who will be able to search
the register before taking security interests. Under the priority rules,
generally speaking, a security interest that is perfected takes priority over
another security interest that is unperfected when the security interest comes
to be enforced, irrespective of whether the perfecting party had notice of any
earlier unperfected interest; priority between perfected interests is
determined by order of registration or time of first perfection by control or
possession; and priority between unperfected interests is determined on a
first-in-time basis.[3]
Security Interests
The guide to the definitions section of the PPS Act
says of security interests:
A security interest is an interest in personal property
provided for by a transaction that secures payment or the performance of an
obligation. The form of the transaction and the identity of the person who has
title to the property do not affect whether an interest is a security interest.
Certain transactions that do not secure payment or the performance of an
obligation may also give rise to a security interest: transfers of accounts,
consignments and certain long‑term leases and bailments (called PPS
leases).[4]
This is consistent with the formal definition in section
12 of the PPS Act:
A security interest means an interest in
personal property provided for by a transaction that, in substance, secures
payment or performance of an obligation (without regard to the form of the
transaction or the identity of the person who has title to the property).
An example of a transaction that clearly satisfies the
definition is that of financing a motor vehicle by way of personal loan. In
those circumstances the person who borrows money to purchase the motor vehicle
has possession of the vehicle but gives the lender a security interest in it to
secure repayment of the loan. The security taken by the lender enables it to
recover possession of the motor vehicle in the event of default. The
registration of the lender’s interest operates as notice to all others that a
security interest exists over the motor vehicle, a fact that the buyer’s
possession of it might otherwise conceal.
The problem of leases
The descriptive nature of the definition means that some
kinds of transactions are not clearly caught. Short term leases are an example.
The Explanatory Memorandum illustrates the point with this
example:
Business A requires a particular item of equipment and enters
into a transaction with Business B who buys the equipment and leases it to
Business A for an extended period. For Business A, the making of lease payments
represents an alternative to the making of loan payments had it obtained
finance and purchased the equipment. Business B’s interest in its equipment
would be treated as a security interest granted by Business A.
Whether other lease arrangements meet the definition of a
security interest can be more difficult to determine. Generally, short term leases
of personal property will be unlikely to meet the definition, but as lease
terms become longer, especially as they begin to approximate the useful life of
the leased property, they become increasingly likely to be a security interest.[5]
To create certainty in relation to short term leases, the PPS
Act deems certain of them to be covered by the Act. These are known as PPS
leases. The Explanatory Memorandum says that this is consistent with
the approach in other common law countries, like New Zealand and Canada.[6]
PPS leases
Section 13 of the PPS Act defines PPS leases
to include a lease or bailment[7]
of goods of more than one year (or for less than one year if it is renewable in
a way that could make the term greater than a year).[8]
Section 13 also includes the following kind of short term lease that is
proposed to be excluded from the operation of the PPS Act by this Bill:
13
Meaning of PPS lease
A PPS lease means a lease or bailment of goods:
(a)... for
a term of more than one year; or
(b)...
(c)...
(d)...
(e) for goods that may or must be
described by serial number in accordance with the regulations, if the lease or
bailment is:
(i) for a term of 90 days or more; or
(ii) for a term of less than 90 days, but is automatically
renewable, or is renewable at the option of one of the parties, for one or more
terms if the total of all the terms might be 90 days or more; or
(iii) for a term of less than 90 days, in a case in which
the lessee or bailee, with the consent of the lessor or bailor, retains uninterrupted
(or substantially uninterrupted) possession of the leased or bailed property
for a period of 90 days or more after the day the lessee or bailee first
acquired possession of the property, (but not until the lessee’s or bailee’s
possession extends for 90 days or more).
Because these leases are also security interests
they are afforded the protections of the PPS Act as explained by Justice
Davies in the earlier passage.
The removal of this kind of lease from the ambit of the PPS
Act does not, however, deprive leasing businesses of protection. A lessor
of, for example, hire cars could rely on lease agreements or similar documents
to prove ownership rather than registration of a security interest.
For small and medium sized leasing businesses which are less
likely to have systems to effect registration easily, the reduction in the
administrative burden of registration is seen as outweighing the removal of the
protections of the PPS Act.
Rationale for the Bill
The Government introduced the Bill as part of its
deregulation exercise on 19 March 2014.[9]
The Attorney‑General’s Department (AGD), in its 2013–14 Annual Report,
stated that the short-term lease changes would reduce regulatory burden.[10]
The Explanatory Memorandum is consistent with this, adding that it would make
compliance costs lower for small to medium businesses as well as bring
Australian law in line with Canada and New Zealand in this area.[11]
Statutory review of the PPS Act
Section 343 of the PPS Act required the Minister to
cause a review of the operation of the Act to be undertaken within a specified
timeframe. On 4 April 2014 the Attorney-General, Senator Brandis,
announced that Mr Bruce Whittaker, a partner with the law firm Ashurst, had
been appointed to lead the review.[12]
As part of the review process, extensive consultation with
stakeholders was conducted. Importantly, that consultation commenced after
the introduction of this Bill into the House of Representatives. That being the
case, some of the stakeholders commented on the Bill and its proposed operation
as part of the much broader statutory review. An interim report on priority
issues raised by small business in the review was delivered to the
Attorney-General and Parliamentary Secretary to the Prime Minister on
31 July 2014.[13]
That report identified that the lack of clarity in the definition of PPS
lease was ‘generating significant uncertainty for a number of
industries. Foremost among these is the hiring industry, but the uncertainties
affect any business whose goods are in the possession of another (eg storage or
courier companies)’.[14]
The final report of the review was released on 18 March 2015.[15]
It recommended that paragraph 13(1)(e) be removed from the definition of PPS
lease (this is the change made by this Bill).[16]
Both the interim and final reports are addressed more fully in the section
headed ‘Position of major interest groups’ below.
At its meeting of 27 March 2014, the Standing Committee for the
Selection of Bills determined that the Bill not be referred to Committee for
inquiry and report.[17]
The Scrutiny of Bills Committee considered the Bill but had
no comment to make about it.[18]
The Bill was considered by the Parliamentary Joint
Committee on Human Rights which noted the contents of the statement of
compatibility. The Committee concluded that the Bill ‘does not appear to give
rise to human rights concerns’.[19]
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011, the Government has assessed the
Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act.[20]
The Government considers that the Bill is compatible.
At the time of writing this Bills Digest no policy
position on the Bill has been announced by the Australian Labor Party (Labor),
other non-government parties or the independents.
As stated above, some stakeholders made comments about the
Bill as part of the review process. The interim report stated that some parties
were supportive of the Bill.[21]
These parties included:
- the
Law Council of Australia[22]
-
the law firms, Allens Linklaters, Ashurst, Herbert Smith
Freehills, King & Wood Mallesons, Norton Rose Fulbright Australia which
made a joint submission to the review. Regarding this Bill they suggested that:
The reference to the 90 day rule in s 588FN(1)(b) of the Corporations
Act 2001 should therefore be removed in line with this amendment. The
example provided in s 588FN(1) in relation to the 90 day rule should also be
removed.[23]
-
Craig Wappett from Johnson Winter & Slattery Lawyers.[24]
Other stakeholders gave qualified support for the Bill.
For instance:
-
ChalkWest stated that the Bill does not go far enough because ‘it
does not solve [the] fundamental issue involved and genuine loss of title can
still occur’.[25]
Its concern is that the PPS Act may operate to extinguish the genuine
title of a property owner to that property if the owner has not registered
their interest (or has registered it incorrectly). Specifically the current
laws do not adequately address the situation where a rental or hire company
leases out its vehicles to a party—and that party becomes insolvent whilst the
relevant vehicles are in its possession. In that case a liquidator who seizes
the vehicles may be determined to have a security interest which is greater
than that of the actual owner.
- Business South Australia
was also concerned about the loss of title with respect to the assets of hire
businesses should an asset be hired for more than 90 days without being
registered and the customer goes into receivership. It supported the Bill with
caveats:
[We] see the Amendment Bill’s proposal to shift out the 90
day limit to 12 months is a positive step, but only on the basis that the
compliance associated with the online Register is streamlined and that there is
a reasonable grace period for small hire businesses to prove ownership in the
event of a customer going into receivership.[26]
-
AVIS, a rental car company, stated of the changes proposed by the
Bill:
For a fixed term hiring, the risks for Avis will be
considerably reduced when the definition of ‘PPS Lease’ in section 13 of the
PPSA is amended ... Under those amendments, a PPS lease will arise in relation to
serial number property only if the hiring arrangement functions for 12 months
or more. However, a hiring arrangement may still be a PPS lease if it is for an
indefinite term. In practice, hiring arrangements by Avis are frequently for an
indefinite term and will depend on the choice of a customer concerning the
timing of return of the vehicle.[27]
The
Australian Hire and Rental Industry Association had no
comment on the Bill but did remark critically upon some of the background
material in the Explanatory Memorandum as well as discussing the financial and
other impacts of the serial number registration requirements.[28]
The final report of the statutory review of the PPS Act said
of the changes proposed by this Bill:
A small number of respondents expressed some reservations
about the practical effects of deleting paragraph (1)(e) from the definition of
PPS lease. All other respondents approved of the amendments contemplated by the
Bill.
Some respondents suggested that it might then be appropriate
to replace the term “PPS lease” throughout the Act with the expression “lease
for more than one year”. The responses suggested that this could increase
transparency.
It would also bring the terminology into line with the
language used in the Canadian PPSAs and the NZ PPSA. On balance, however, I am
not in favour of recommending this change. Users of the Act have become quite
accustomed to working with the term “PPS lease”, and while the term is arguably
unhelpful, in that it does not give the reader any immediate sense of what the
term captures, it is also helpful, in that it forces the reader to look at the
definition of the term in s 13. While the expression “lease for more than one
year” does capture the essence of the concept of a PPS lease, it risks masking
the fact that some leases can be PPS leases even if they do not run for more
than one year (for example, if a lease agreement has an initial term of less
than one year, but includes renewal options that do not get exercised). Using a
more content-neutral expression such as PPS lease eliminates the risk that a
reader might take the expression “lease for more than one year” at face value,
and end up being misled.[29]
The Bill has no financial implications for the
Commonwealth.[30]
Items 3-4 of the Bill amend the definition of PPS
lease in subsection 13(1) of the PPS Act to exclude leases of
goods with serial number registration where the lease or bailment is more than
90 days but less than 12 months. Such leases will no longer be recognised under
the PPS Act.
Items 5-6 of the Bill are consequential amendments to
subsection 268(1) of the PPS Act to remove references to this type of PPS
lease.[31]
Item 7 of the Bill insert proposed
Schedule 1—Transitional provisions relating to amendment of this Act
at the end of the PPS Act. Proposed Part 1 of Schedule 1 sets out
transitional provisions arising from the Bill, which provide that current
paragraph 13(1)(e) of the PPS Act continues to apply to leases entered
into before the Bill commences.
The Bill makes a minor amendment to the definition of PPS
lease with the effect that leases in excess of 90 days, of serial
numbered goods, will not be covered by the PPS Act. This will remove
administrative burdens on affected leasing businesses, particularly small and
medium ones. They will, however, not have the benefit of the protections
afforded by the PPS Act and will have to rely on other means to protect
their interest in the event of disputes over title. This would be by way of
proof of their ownership of the leased goods and the relevant lease agreement.
In making a single change to the PPS Act prior to
finalising its response to the statutory review carried out by Mr Whittaker,
the Government has declined to follow this suggestion, in the joint submission
of several major Australian law firms:
To the extent that any reforms are implemented as a result of
the review, we consider that it would be preferable if that occurred at the one
time rather than in stages. It will be simpler and less expensive for
businesses if they only need to consider the impact of, and implement any
changes to, their systems, policies, procedures and documentation once.[32]
Members, Senators and Parliamentary staff can obtain
further information from the Parliamentary Library on (02) 6277 2500.
[1]. Personal Property
Securities Act 2009, accessed 12 May 2015.
[2]. The
Bills Digest for the Personal Properties Securities Act 2009 explored
the inquiries and Commonwealth-state co-operation that led to the Personal
Property Securities Act 2009 being drafted, agreed to and implemented. See
P Pyburne and D Spooner, Personal
Property Securities Bill 2009, Bills digest, 36, 2009–10,
Parliamentary Library, Canberra, 2009, pp. 6–10, accessed 7 May 2015.
[3]. Justice
Davies, ‘Personal
Properties Securities Act 2009 (Cth): objectives and emerging issues’, Federal
Judicial Scholarship, 7, 2014, paragraph [5], accessed 7 May 2015.
[4]. Personal Property
Securities Act 2009 (Cth), section 9, accessed 12 May 2015.
[5]. Explanatory Memorandum,
Personal
Property Securities Amendment (Deregulatory Measures) Bill 2014, p. 3,
accessed 8 May 2015.
[6]. Ibid.,
p. 3.
[7]. Bailment
is defined as the delivery of personal chattels by the owner of the
chattels (the bailor) into the possession of another person (the bailee) upon
an express or implied promise that they will be redelivered to the bailor, or
dealt with in a stipulated way. Source: Butterworths concise Australian legal
dictionary, 3rd edition, LexisNexis Butterworths, Australia, 2004, p. 41.
[8]. Personal Property
Securities Act 2009 (Cth), section 13, accessed 12 May 2015.
[9]. D
Spooner and J Chowns, Omnibus
Repeal Day (Autumn 2014) Bill 2014, Bills digest, 67, 2013–14,
Parliamentary Library, Canberra, 2014, p. 2, accessed
28 January 2015.
[10]. Attorney-General’s
Department, Annual
report 2013–14, pp. 2, 21, accessed 27 January 2015.
[11]. Explanatory Memorandum,
Personal
Property Securities Amendment (Deregulatory Measures) Bill 2014, p. 2,
accessed 28 January 2015.
[12]. G
Brandis (Attorney-General), Statutory
review of the Personal Property Securities Act, media release, 4 April
2014, accessed 12 May 2015.
[13]. Attorney-General’s Department
(AGD), ‘Statutory
review of the Personal Property Securities Act 2009’,
AGD website, accessed 7 May 2015.
[14]. B
Whittaker, Review
of the Personal Property Securities Act 2009, Interim report,
Commonwealth of Australia, 2014, p. 21, accessed 12 May 2015.
[15]. G
Brandis (Attorney-General) and C Porter (Parliamentary Secretary to the Prime
Minister), Report
on Personal Property Securities Act released, joint media release, 18
March 2015, accessed 12 May 2015.
[16]. B
Whittaker, Review
of the Personal Property Securities Act 2009, Final report,
Commonwealth of Australia, 2015, recommendation 19, p. 78, accessed 7 May 2015.
[17]. Senate
Standing Committee for the Selection of Bills, Report
No. 4 of 2014, The Senate, Canberra, 27 March 2014, accessed 12 May
2015.
[18]. Senate
Standing Committee for the Scrutiny of Bills, Alert
Digest No. 4 of 2014, The Senate, Canberra, 26 March 2014, p. 21,
accessed 12 May 2015.
[19]. Parliamentary
Joint Committee on Human Rights, Fifth
report of the 44th Parliament, The Senate, Canberra, 25 March 2014, p. 39,
accessed 12 May 2015.
[20]. The
Statement of Compatibility with Human Rights can be found at page 22 of the Explanatory
Memorandum to the Bill.
[21]. B
Whittaker, Review
of the Personal Property Securities Act 2009, Interim report, op. cit.,
p. 28.
[22]. Law Council of Australia,
Submission
to the Attorney-General’s Department, Review of the Personal Property
Securities Act 2009, 6 June 2014, p. 5, accessed 8
May 2015; Law Council of Australia, Submission
to the Attorney-General’s Department, Review of the Personal Property
Securities Act 2009, 28 July 2014, paragraph [3.3], accessed
8 May 2015.
[23]. Allens Linklaters,
Ashurst, Herbert Smith Freehills, King & Wood Mallesons, Norton Rose
Fulbright Australia, Submission
to the Attorney-General’s Department, Review of the Personal Property
Securities Act 2009, 6 June 2014, p. 44, accessed
27 January 2015; Corporations Act 2001
(Cth), subsection 588FN(1)(b), accessed 8 May 2015.
[24]. C
Wappett, Johnson Winter and Slattery Lawyers, Submission
to the Attorney-General’s Department, Review of the Personal Property
Securities Act 2009, [2014], accessed 27 January 2015.
[25]. ChalkWest,
Submission
to the Attorney-General’s Department, Review of the Personal Property
Securities Act 2009, [2014], accessed 27 January 2015.
[26]. Business South Australia,
Submission
to the Attorney-General’s Department, Review of the Personal Property
Securities Act 2009, 6 June 2014, accessed 8 May 2015.
[27]. AVIS,
Submission
to the Attorney-General’s Department, Review of the Personal Property
Securities Act 2009, 25 July 2014, p. 3, accessed
8 May 2015.
[28]. Australian Hire and Rental Industry Association,
Submission
to the Attorney-General’s Department, Review of the Personal Property
Securities Act 2009, n.d., pp. 14, 16, and 18, accessed
27 January 2015.
[29]. B
Whittaker, Review
of the Personal Property Securities Act 2009, Final report, op. cit.,
p. 78.
[30]. Explanatory
Memorandum, op. cit., p. 2.
[31]. Personal Property
Securities Act 2009 (Cth), subsection 268(1)(a)(ii), accessed
28 January 2015.
[32]. Allens Linklaters,
Ashurst, Herbert Smith Freehills, King & Wood Mallesons, Norton Rose
Fulbright Australia, Submission
to the Attorney-General’s Department, Review of the Personal Property
Securities Act 2009, op. cit., p. 3.
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