Australia: Changes to the PPSA in Relation to PPS Leases
The leases and bailments of personal property that require registration on the Personal Property Securities Register (PPSR) as PPS leases will be substantially reduced due to proposed amendments to the Personal Property Securities Act 2009 (Cth) (PPSA) proposed in the Personal Property Securities Amendment (PPS Leases) Bill 2017 (PPS Bill).1
Context of the PPS Bill
A cornerstone of the PPSA was the introduction of the PPSR establishing a single, national register for security interests in personal property.
Section 13 of the PPSA currently provides that certain leases and bailments of goods either for an indefinite term or a term of more than one year are PPS leases. The interest of the lessor or the bailor under a PPS lease is then deemed to be a security interest (regardless of whether it in substance is a security interest),2 with the effect that those security interests are required to be registered on the PPSR in order to be perfected.
As noted in the Second Reading Speech for the PPS Bill, while the PPSR is designed to protect creditors and ensure that notice of a security interest is made available to prospective lenders it has become clear that the framework has created several challenges for small and medium business, particularly those in the equipment hire industry. Those challenges include the imposition of a significant administrative burden and substantial compliance costs coupled with the risk of losing assets if they fail to comply with the registration requirements.3 The PPS Bill seeks to reduce that burden.
The effect of the PPS Bill
The PPS Bill seeks to reduce the scope of the PPSA's definition of a PPS lease in the following manner:
- Fixed term leases and bailments of goods (which otherwise meet the criteria for a PPS lease) will only give rise to a PPS lease if they are for a term of more than two years, including the term of any options to renew (where currently under the PPSA, a PPS lease arises where the lease or bailment is for a term of more than one year, including the term of any options to renew);
- Leases and bailments of goods for a term of up to two years (which otherwise meet the criteria for a PPS lease) will only give rise to a PPS lease after two years if the bailee or lessee, with consent, continues to have uninterrupted possession of the goods for more than two years; and
- Leases and bailments of goods for an indefinite term (which otherwise meet the criteria for a PPS lease) will only give rise to a PPS lease once the bailee or lessee's uninterrupted possession of the goods has exceeded two years (where currently all indefinite bailments or leases could be a PPS lease).
If a lease or bailment of goods is not a PPS lease and does not otherwise give rise to an in substance security interest, the lessor or bailor will not be required to protect their interests by making a registration on the PPSR.
Although the amendments are aimed at assisting the hire industry, any business that engages in high volumes of short but indefinite term leases or bailments should see a significant reduction in administrative and compliance costs and risk. For example, short term leases that permit the customer to use the goods for as long as they need them will not need to be registered on the PPSR for the first two years of the lease.
Timing and operation of the amendments to be made by the PPS Bill
The proposed amendments to the PPSA will commence the day after the PPS Bill receives the Royal Assent.
Once in operation, the amendments will only apply in relation to leases or bailments that were entered into after the commencement date of the PPS Bill. All existing leases or bailments of personal property will remain subject to the current regime.
1 Tabled before the House of Representatives on 1 March 2017. The PPS Bill addresses several concerns discussed in the Review of the Personal Property Securities Act 2009 (Whittaker Review) with respect to the operation of the PPS leases provisions of the PPSA: See pages 74-77 of the Whittaker Review which can be found here.
2 Section 12(3) of the PPSA.
3 Second Reading Speech for the PPS Bill.