The Federal Government plans to make significant changes to Australia’s personal property securities law to remove complexity. For a reminder of the existing Personal Property Securities Scheme (PPSS), take a look at our recent article which also lists its benefits for business owners and consumers. While changes to the PPSS are not yet in law, businesses and individuals should prepare now by proactively considering the impact of these reforms.
The scheme was introduced to provide a centralised registration system with uniform rules and regulations for all security interests in personal property, but the law behind it, the Personal Property and Securities Act 2009 (Cth) (PPSA), is considered overly technical and complex, limiting its effectiveness. Recognising this issue, in 2015, the Federal Government reviewed the PPSA. The Whittaker Review recommended 394 changes to simplify the legislation. In late 2023, the Federal Government published proposed changes to the PPSA, accepting 345 of those recommendations.
Here’s a breakdown of the key changes
- Remove unnecessary confusing concepts: The plan is to remove certain concepts, references and definitions in the PPSA that have caused confusion or uncertainty and make it easier to understand for those without legal training. Planned changes include the removal of “chattel paper”, references to “bailments” in the definition of PPS lease, and the legal definitions of “consumer property” and “commercial property.”
- Simplify existing concepts: Other aspects of the PPSA will be simplified, such as amending the definition of “motor vehicle” to mean any item of property with a 17-digit vehicle identification number, reducing the number of collateral classes from nine to six categories for registration, extending registration durations, and altering the registration process for security interests over trust assets.
- Clarify rules: There are plans to clarify parts of the PPSA, including determining when a lease becomes a PPS lease and rules regarding the registration of purchase money security interests (PMSIs). There will be an updated process for amendment demands, defining collateral in registrations, allowing multiple class registrations and a detailed summary for Chapter 7. This involves clarifying foreign security interest recognition and revising enforcement rules for various property types.
- Replace enforcement provisions: The enforcement provisions in Chapter 4 of the PPSA will be restructured and reorganised to provide a more logical flow. Notably, the new provisions will also apply to security interests in goods located outside Australia, which may help businesses manage their security interests across jurisdictions.
- Stricter rules for registrations against individuals: New obligations will be introduced, requiring secured parties (creditors) to remove registrations against individuals within five business days after being paid out, or no longer being owed any obligations by the individual.
- Expand authority of the PPS Registrar: The Registrar will be able to issue infringement notices and obtain injunctions under the new law.
How will the changes affect your business?
- Providing goods and services on credit: Under the proposed changes, all rights, duties and obligations relating to the enforcement of a security interest must be exercised in a commercially reasonable and honest manner. The changes will prohibit contracting out of this duty. However, businesses can contract out of provisions which are not contained in Chapter 4. Businesses using standard security agreements need to carefully review the exclusion clauses to ensure compatibility with the new regime.
- Asset finance: The changes to the definition of motor vehicles and aircraft will impact registrations for asset finance transactions as they will narrow the range of vehicles and aircraft that can be registered by serial number. Equipment lessors, hire purchase companies and other asset financiers need to carefully consider their current registration policies and adapt to the new regime.
When will the changes take effect?
There will be a two-year transition period from when the changes are passed by the Government to when they will take effect. It is not yet clear whether existing registrations will be “grandfathered” (governed by the old rules) or whether the new regime will apply to all existing registrations.
During that time, businesses should update their terms and conditions to account for changes to important definitions and coverage of the scheme. Training and other materials should also be updated.
Get in touch if you would like assistance to reflect these changes in your existing contracts and work processes.
