Legal Insight Issue 22
And just when you thought you were getting a handle on the PPSA
The Personal Property Securities Act, 2009 (Cth) ("Act") came into effect in January 2012. Yes, over 3 years ago. In its wisdom (we mean that seriously), the Government built into the Act a requirement that it be reviewed within 3 years and the review be tabled in both Houses of Parliament… to ensure it's achieving its purpose. The review is in.
You may be surprised to learn that the purpose of the Act when it passed Parliament was to provide "more certain, consistent, simpler and cheaper arrangements for personal property securities". Opinions vary (indeed polar opposites) as to whether this has been achieved, but it's safe to say we have not read or heard of anyone suggesting it has achieved all of these purposes.
The Review is anything but brief. It runs to over 500 pages and includes various comments, submissions, feedback from stakeholders across Australia, suggested changes, diagrams, schedules and anecdotal examples of issues which have arisen over the last 3 years.
It is beyond the scope of this article to detail even in general terms the results and recommendations of the Review. However, if you are involved in security arrangements (whether granting or receiving security), the Review is a considered and helpful guide, both from an historical perspective in relation to securities law in Australia and in summarising large parts of the Act.
The Review does far more than suggest a few amendments to the Act. The recommendations are numerous and varied. In our view, Parliament and stakeholders across Australia will need substantial time to digest the Review and embark on the drafting exercise to give effect to the recommendations (although the Review does in cases suggest proposed wording), particularly given the cross-referencing of many recommendations.
Some of the comments from the Review are:
- The Act is significantly longer, more complex and less clear than corresponding legislation in other jurisdictions, e.g. United States, Canada and New Zealand;
- There is no simple way to clarify various concepts and sections of the Act and numerous changes are suggested to ensure the Act achieves its stated purpose;
- General awareness of the Act is still at a low and, even for those who are cognisant it exists, how it operates is still perplexing for most businesses;
- Further education campaigns are suggested regarding the Act generally, as well as the proposed amendments;
- The concerns of businesses in the hiring industry are still high – i.e. the hiring industry is generally unhappy with its operation, no doubt given it has reached into an area where securities legislation previously had little or no application;
- The public register for recording interests (the Register or the PPSR) is highly technical, unduly complicated and includes details which are either not provided for in the Act, giving rise to potential ambiguity and risk. Despite the details and complexity, the Register often doesn't disclose germane facts to the public - for example, the monetary value of a security interest or a precise or helpful description of the actual property/goods secured;
- The effects of an error when entering data on the Register may be drastic and draconian (a secured party may lose its security if they tick the wrong box), and the Register's interface is still exquisitely complex for lay and trained people alike;
- The inconsistency in language throughout the Act is problematic and, in some cases, creates real ambiguity;
- A recommendation that certain interests which are currently excluded from the Act's operation be included;
- Some of the words and phrases used are counter-intuitive; and
- Wholesale amendments are suggested in relation to many fundamental concepts at the core of the Act – for example, the meaning of the terms or concepts "security interest", "rights in the collateral", "transfer of collateral", "attachment", "perfection", the mode and notice requirements when enforcing a security interest and the "vesting" of security interests upon various insolvency events.
As the Review fairly and rightly points out, the Act brought about huge changes to the securities landscape. When doing so, it also did away with hundreds of years of legal authority and concepts. The Review accepts that the Act will always be long and complex given the nature and complexity of the issues which it must necessarily cover.
We think it is highly unlikely the Act will be repealed, particularly given its clear purpose, the years leading up to it and the fact it has been the law across Australia for over 3 years. The Review's general recommendation is to maintain the Act.
We now need to sit tight and wait. If large parts of the Review are adopted, this will necessitate careful and detailed transitional arrangements. Unfortunately, this will also no doubt bring with it further complexities.
Watch this space!