On 22 September 2023 the Commonwealth government released the Personal Property Securities Amendment Bill 2023 and amending regulations for public consultation until 17 November 2023. The aim is intended to simplify the use of the law, in particular the registration process, and clarify its application, especially around enforcement priorities.

Over the past 2 months we have published articles discussing case determinations on the Personal Properties Securities Act (PPSA) that:

• demonstrate the attempts made to clarify what constitutes a personal property security interest (AWE v Clough)

• how the boundaries are being tested of the law’s application (Laurus v Mitsui);

• whether assets fall within the PPSA as fixtures or bailments (De Bourbel v Distilleria); and

• how priority disputes and what constitutes a circulating security asset are being resolved (Resilient v Spitfire ).

It is safe to assume we are supportive of any attempt to simplify the registration process and the law generally and to add clarity to its interpretation and application.

Proposed Reforms

The reforms are presented in sections to address different aspects attempting to be addressed to meet the purported aims of simplification and clarification.

Reach of the Act

The definition of a PPS lease is proposed to be amended to remove the reference to bailments. Something that the Court grappled with in the De Bourbel v Distilleria case.

Section 8 of the PPSA which sets out things not caught within the PPSA regime is to be repealed and replaced with a new section 12A that will state interests that are not security interests. Another issue addressed in the AWE v Clough and the Laurus v Mitsui cases.

A new section 13B will be inserted to clarify interests that are not ‘personal property’ and to distinguish what is covered by ‘personal property’ and what is covered by ‘security interest’.

Section 13B(c) will clarify the exclusions relating to interests in land.

Creating an effective security interest

Registration is sought to be simplified by amending the definition of ‘description’ which has plagued those trying to allocate their registration to a collateral class of asset sought to be protected.

A new section 15A will be inserted to permit collateral to be described by ‘item or kind’. ‘Item’ to be specifically distinguishable asset and ‘Kind’ being a broad description of multiple pieces of an asset.

Temporary perfection will be extended from 5 business days to 10 business days in an amendment to section 33(2).

Dealings in collateral

The definition of a Purchase Money Security Interest (PMSI) will be amended and the requirement to have to check the PMSI box will be removed. Thus attempting to avoid issues about the validity of registrations and whether items have vested in external administrators pursuant to section 267 of the PPSA.

There will also be separate priority and enforcement rules for ‘processed’ and ‘co-mingled’ goods in Part 3.4 of the PPSA.

Enforcement

A proposed new section 109(2) to be inserted to clarify that security interests in personal property to which the National Credit Code applies are excluded from the operation of the Chapter 4 as the NCC regulates enforcement in respect of consumer credit transactions.

A proposed new mandatory enforcement rule to allow a secured party wanting to retain collateral to request proof of the interest in the collateral of a person if the person objects to request proof of any objecting party’s claim that it would be adversely affected. This expands from the current position of only being able to request proof of an interest.

Perfection by registration

New rules are proposed to streamline the end times for registrations in respect of individuals or serial numbered registrations to a maximum of 7 years.

The definitions of commercial and consumer property are to be abolished.

The number of collateral classes are proposed to be reduced from 9 classes to 6 classes, with an ability to enhance functionality to enable registration against a number of collateral classes.

The government has also proposed to move the section 340 definition of circulating security asset into the Corporations Act thus avoiding the analysis issues which arose in the Resilient v Spitfire case.

What’s Next

Public consultation is open until 17 November 2023 after which targeted consultation is expected to occur.

So at this stage although there is a draft bill, regulations, explanatory statements it will be a case of watch this space to see what is the final decision on the amendments proposed to be made.

The Government response consultation paper also seeks feedback on whether any changes should result in:

• grandfathering in of existing registrations and the law’s application to them; or

• a transitional arrangement of 2 years post the passing of the finalised changes for users to update their registrations and the changes to be operative as the new law.

The transitional approach was the one utilised when the PPSA was initially introduced and avoids the need to operate two sets of laws dependent upon the date a PPS interest was created or perfected.

Given the potential impact of these changes we suggest those who which to provide feedback to the government do so prior to 17 November 2023 via the portal the link of which is https://consultations.ag.gov.au/legal-system/government-response-to-pps-review/

If you have any questions please feel free to contact Alicia Hill, Kelvin Tay, Meagan O’Connor or Dean Beaumont at the contact details below.

Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au

Meagan O’Connor
Principal
T +61 3 9611 0106| M +61 438 531 978
E: moconnor@sladen.com.au
Dean Beaumont
Senior Associate
T +61 3 9611 0129
E: dbeaumont@sladen.com.au