For many businesses, the Personal Property Securities Act 2009 (Cth) (PPSA) is a complex web of cumbersome regulatory measures and difficult to manage compliance requirements. Businesses in the leasing industry are particularly at risk of becoming tied down in the administrative burden of procedures that are not at all commercially practical.
As a commercial lawyer, I’m regularly approached by business owners who are time poor and money conscious. For them, the need to register and perfect their security interest is an unwanted burden and the cause of much grief. If you empathise with these sentiments, fear not, for the Personal Property Securities Amendment (Deregulatory Measures) Act 2015 (Act) amended the PPSA on 1 October 2015 to simplify how businesses in the leasing industry comply with the PPSA. Originally scheduled to commence on Christmas Day, the earlier enactment will no doubt come as a welcome gift to all business owners.
The PPSA
There is an age-old legal idiom that ‘possession is nine-tenths of the law’. The introduction of the PPSA carried with it measures that tipped the balance in favour of anyone who had a registered interest in goods on the PPS Register. Since the PPSA’s enactment, it does not matter who is in possession of the goods, and it certainly doesn’t matter who is the perceived ‘owner’.
The PPSA commenced on 30 January 2012 and continues to pose challenges to business owners. By now, you have probably heard stories of business owners who forgot to register and perfect their security interest in goods that were supplied under a retention of title to customers. Ultimately the business owner misses out on getting their goods back from their customer, which end up in the hands of third parties, such as secured creditors and insolvency administrators (the Grinch!). The Act swings the pendulum back towards the business owners, particularly those in the leasing industry that may not have the time or money to register and perfect their interests.
Prior Position for PPS Leases
Prior to the Act, goods that fell within the definition of a ‘PPS lease’ had to be registered on the PPS Register in order to preserve a lessor’s priority in the goods. A PPS lease included, amongst other things, serial numbered goods leased or bailed for a term of 90 days or more, or for a term under 90 days, but that are automatically renewable or with an option to renew where the total term might be 90 days or more. The effect of this position meant that a business, in order to protect its interest in goods that fit the definition of a PPS lease, had to spend time and money in registering and perfecting their interest – time and money that could be spent on growing their business.
The Need for Change
The decision to enact the Act was anything but a knee-jerk reaction. Extensive consultation with Australian businesses identified several administrative and financial burdens that come with PPSA compliance.
It was in these discussions that the road to pragmatic solution and reform was paved. And for good reason: the leasing industry has an annual turnover of around $6.6 billion and employs over 18,000 Australians.
It doesn’t take a genius to understand that time and money saved on compliance regulations can be redirected back into the sector and improve the lives of business owners and employees!
Key Reforms Commenced on 1 October 2015
The Act amends the definition of a PPS lease in the PPSA. The effect of the amendment is that leases of serial numbered goods for a term between 90 days and less than a year, which do not secure payment or performance of an obligation, are no longer deemed a ‘PPS lease’. This means that businesses that lease serial numbered goods within this category no longer have to worry about jumping through financial and administrative hoops in order to protect their interest. For such leases, proof of ownership will be sufficient to enforce the lessor’s interest in the event of a customer’s default. These changes only apply prospectively: that is, to leases and bailments entered into after 1 October 2015.
Be Prepared
The result of the new changes mean that businesses are no longer required to record their interest on the PPS Register for leases of serial numbered goods for less than a year that do not secure payment or performance of an obligation. If a business opts to register such interests on the PPS Register, they may be liable for civil penalties (up to $42,500 per registration). These civil penalties apply if they register arrangements that are not security interests pursuant to the PPSA. Nevertheless, the relaxing of the regulations for the leasing or bailment of serial numbered goods for less than a year will come as a welcome gift to business owners that just want to get on with the job of running a profitable business.
Although the amendments are undoubtedly a positive change, business owners must continue to be vigilant in complying with the PPSA and the PPS Register. This reform doesn’t change the need for a person that holds a security interest in leased goods (if the transaction in substance, secures payment or performance of an obligation) to register or otherwise perfect the security interest to ensure that the security interest has priority over competing interests.
It is recommended that businesses conduct an analysis of their goods to determine how, if at all, these amendments impact on their ability to register a security interest in their goods on the PPS Register. The PPSA contains strict rules governing the registration process for security interests. Conducting a review will help businesses to avoid the consequences of a defective registration of their goods.
Bryks Lawyers has considerable expertise in all things PPSA. Our experienced team will guide you through these changes and any other commercial law matters that might be on your mind. Start the conversation today.
