Review of the Personal Property Securities Act 2009
Consultation Response Template
Consultation Paper 1
Instructions:
Please use the form below to provide feedback with respect to the proposed recommendations and issues listed in each section of the form. Please refer and respond to the proposed recommendation or issue as set out in Consultation Paper 1. The heading and paragraph number of the relevant sections of the consultation paper are included to help guide you.
Please note your agreement or disagreement with the proposed recommendation by deleting either ‘Yes’ or ‘No’ where indicated. Comments can be provided in the box below each proposition. There is no word limit for comments but succinct responses clearly setting out the reasons for agreement or disagreement with the proposed recommendation will be of most use for the purposes of the review.
You may respond to as many or as few propositions as you wish.
Name: Lionel MeehanOrganisation: Ashurst Australia. The views expressed below are personal to me and are not necessarily those of Ashurst Australia.
Background/Expertise/Interest in PPSA Review: Partner practising in insolvency, restructuring and banking aspects of PPSA.
Contact Details:
2.1.2 The ostensible ownership concern
/In my view, the concept of perfection and the existence of the Register are integral components of the Act, and the publicity function that they are designed to serve, by providing outsiders with an opportunity to determine whether an item of personal property might be subject to an encumbrance, is a central function of the regime established by the Act and should be preserved. I would however be interested to hear whether others share this view.
Comments:
Completely agree.
2.2 Should the Act be repealed?
/Proposed recommendation 1.1: That the Act not be repealed, but rather that it be amended, to enable it to better achieve its potential.
Do you agree with the proposed recommendation? / Yes
Comments:
The Act should not be repealed.
3.2 Does a security interest need to be a proprietary interest?
/Proposed recommendation 1.2: That the definition of "interest" in s 10 of the Act be deleted. /
Do you agree with the proposed recommendation? / Generally Yes /
Comments: /
3.3.1 Interpretation of s 12(2)
/[T]he correct approach to the interpretation of s 12(2) is that the list of transactions does not expand the meaning of the term "security interest", but only provides examples of transactions that can give rise to a security interest if they otherwise fall within the definition of the term. /
Comments:
I see the list of example transactions as giving content to the definition of "security interest". If transactions are listed as an example, then clearly they are within the scope of the definition of "security interest". /
3.3.2 Conditional sale agreements – s 12(2)(d)
/Proposed recommendation 1.3: That s 12(2)(d) be amended to read:
(d) an agreement to sell subject to retention of title; /
Do you agree with the proposed recommendation? / Yes /
Comments: /
3.3.3 Trust receipts – s 12(2)(g)
/Proposed recommendation 1.4: That s 12(2)(g) be deleted. /
Do you agree with the proposed recommendation? / No /
Comments:
I think it is helpful to include a reference to trust receipts, especially if it is accepted, as the consultation paper suggests, that they are security interests. Otherwise, doubt is created as to whether they are security interests. Any benefit from the reduction in the amount of text in the Act would be outweighed by the doubt created by the deletion of these few words. /
3.3.4 Interests that might also be deemed security interests – ss 12(2)(h) and (i)
/Proposed recommendation 1.5: If a transfer of an account or chattel paper continues to be a transaction that is deemed by s 12(3) to give rise to a security interest whether or not the transaction in substance secures payment or performance of an obligation, that a new paragraph be inserted in s 12(2), in substitution for current s 12(2)(g) (as to which, see Proposed recommendation 1.4 above):
(g) a transfer of the benefit of a monetary obligation (whether or not an [account] or [chattel paper]); /
Do you agree with the proposed recommendation? / Yes /
Comments: /
3.3.5 Assignments, and transfers of title – ss 12(2)(j) and (k)
/Proposed recommendation 1.6: None at this stage, pending further consideration. /
Comments: /
3.3.6 Flawed asset arrangements – s 12(2)(l)
/Proposed recommendation 1.7: That s 12(2)(l) be deleted. /
Do you agree with the proposed recommendation? / No /
Comments:
A flawed asset arrangement may create a proprietary interest – depending on the indicia of a proprietary interest that one focuses upon – the transaction gives the "secured party" exclusive control of the asset, which is associated with and often indispensable to the secured party's ability to deal with the asset through contractual or common law rights of appropriation, set-off, or combination, upon default. I don't think it can be so easily discounted as "non-proprietary". It clearly shows some indicia of property.
In addition, a flawed asset arrangement generally functions as security.
So I see no reason to exclude flawed asset arrangements simply because there may be some discussion as to how "proprietary" they are, given they show proprietary features and function as security.
The argument in favour of regulation is stronger than the argument that they be excluded from the PPSA. If excluded, these transactions would remain unregistered and completely silent in the economy.
Money in a blocked account looks, ostensibly, to be available to a grantor, but is not so available if subject to a flawed asset arrangement. The ostensible ownership concern also points towards regulation of these arrangements as security interests. /
4.1 Deemed security interests – Policy rationale
/[T]he primary factor in deciding whether a particular interest should be considered for inclusion in s 12(3) are whether it engages the ostensible ownership concern and, if it does, whether it would produce significant disruption if the interest were not captured. /
Comments:
I agree that the ostensible ownership concern should be the primary factor driving which transactions should be regulated as security interests. It need not be the only driving factor.
I would like to see transactions regulated unless the regulation itself would produce significant disruption (rather than the test outlined in the discussion paper that transactions would only be regulated if not to do so would produce significant disruption). I think this approach is true to the "uniformity principle" that underlies the PPSA, being to treat like transactions in a similar fashion, which creates predictable, consistent and understandable results. /
4.2.1.1 Should the Act deem a transfer of an account (however defined) to be a security interest if it does not secure payment or performance of an obligation?
/Proposed recommendation 1.8: That s 12(3)(a), which provides that a transfer of an account can be a security interest whether or not it in substance secures payment or performance of an obligation, be retained. /
Do you agree with the proposed recommendation? / Yes /
Comments: /
4.2.1.2 The meaning of "account"
/Proposed recommendation 1.9: None at this stage, pending further consideration. /
Comments:
The definition of "account" is relevant for various purposes under the PPSA, including to the definition of "circulating assets" in section 340, although the definition as used in section 340 is narrower than its general definition in section 10.
The definition of account, as it currently stands for the purposes of section 340, is likely to be narrower than the previous equivalent definitions of book debts or (more likely) receivables, which were previously floating charge property. Narrowing the definition of account in this way may have the effect of narrowing the scope of circulating assets available for other priority creditors, and to fund administrations. This consequence should be clarified when considering and determining the regulation of accounts under the PPSA. /
4.2.1.3 The meaning of "transfer" – outright legal transfers
/Proposed recommendation 1.10: That s 12(3)(a) not apply to a transfer of an account that is an outright legal transfer. /
Do you agree with the proposed recommendation? / No /
Comments:
Another way to approach this issue may be to determine whether the transferor under a legal assignment of accounts (notified to the underlying debtor) can, in fact, double-deal and assign the account to another after the legal assignment has completed. I don't think the transferor can (or should be able to) "double deal" in these circumstances.
The transferor under a perfected legal assignment of accounts has no remaining "rights in the account", and stands in a different position to a lessee under a PPS lease who clearly retains rights in the collateral and therefore can "double deal" to grant further security (Re Maiden).
If this matter is clarified, which seems desirable, then arguably there is no need to amend this section to provide that legal assignments are excluded, because the risks of double-dealing associated with regulating the transaction as a security interest would have been clarified not to exist.
This approach (regulating legal assignments as security interests) has the advantage of preventing "structuring" to avoid application of the PPSA which creates "silent" transactions, whereby accounts are transferred by legal assignment, and there is a contractual agreement that the account be "put" or "transferred" back in various circumstances. This seems to run the risk of re-introducing the previous difficulty associated with characterising the arrangement as security – is it a legal mortgage, or an outright transfer (is there an equity of redemption?). I do not consider this concern to be adequately addressed by section 12(1) – that does not simplify the law. /
4.2.1.3 The meaning of "transfer" – novations
/Proposed recommendation 1.11: That the Act not be amended to clarify that a novation is not a "transfer" for the purposes of the Act. /
Do you agree with the proposed recommendation? / See comment /
Comments:
I think it would be helpful to clarify whether novations are captured as a transfer of an account. This could be done very simply, and I think the benefit from the clarification outweighs the additional wording inserted into the Act.
If one thinks of the standard LMA debt trading documentation, it operates in "three tiers", being sub-participation, assignment or novation, and the parties can select which transaction structure suits them, but all will achieve the same purpose of transferring debts/receivables.
Novations can, and are, used to transfer accounts, so the Act should be clarified as to whether novations are regulated as security interests. /
4.2.1.3 The meaning of "transfer" – declarations of trust
/Proposed recommendation 1.12: That the Act not be amended to clarify that a declaration of trust is not a "transfer" for the purposes of the Act. /
Do you agree with the proposed recommendation? / See comment /
Comments:
The word "transfer" (as opposed to "assign") has the widest possible import in connection with the assignment or alienation of legal rights, and has been held under English case law to capture the declaration of trusts over rights: Don King Productions Inc v Warren [1998] 2 All ER 608; Barbados Trust Co Ltd v Bank of Zambia [2007] All ER (D) 350. On this basis, it seems that the declaration of a trust over an account may be a "transfer" of the account for the purposes of section 12(3)(a).
If it is suggested that a declaration of trust over an account is not to be regulated as a transfer, yet assignments are to be regulated, that matter should be expressly clarified. Otherwise, the practice of declaring trusts over accounts, as opposed to assigning them, may develop as a "structuring" technique to implement "silent", un-registrable security interest transactions.
My view is that a trust over an account can/does operate as a transfer of the account(s), and should be regulated as a security interest if it falls within 12(1) (if it secures obligations). /
4.2.2 Transfer of chattel paper
/Proposed recommendation 1.13: That the definition of "chattel paper" in section 10, and all references in the Act to chattel paper (including s 71), be deleted. /
Do you agree with the proposed recommendation? / Yes /
Comments: /
4.3 Commercial consignments
/Proposed recommendation 1.14: None at this stage, pending further consideration. /
Comments: /
4.4.2 Personal Property Securities Amendment (Deregulatory Measures) Bill 2014
/The Personal Property Securities Amendment (Deregulatory Measures) Bill 2014 is currently before Parliament. If passed, it will remove paragraph(1)(e) from the definition of PPS lease in s13, and make consequential amendments to other provisions in the Act. As Government has already responded to the issue of s 13(1)(e), I am proceeding on the basis that I will not need to address it in my report. However, I would note my support the proposed deletion of paragraph (e) from the definition of PPS lease, and subject to the Bill’s passage through Parliament, the prompt commencement of the amendments. /
Comments: /
4.4.3 Should the Act apply to leases at all, if they do not operate in substance as security?
/Proposed recommendation 1.15: That the Act continue to apply to some types of longer–term leases, whether or not they operate in substance as security for payment or performance of an obligation. /
Do you agree with the proposed recommendation? / Yes /
Comments: /
4.4.4 Should the Act apply to bailments?
/Proposed recommendation 1.16: That the definition of PPS lease in s 13 be amended to remove all references to "bailments". /
Do you agree with the proposed recommendation? / Yes /
Comments: /
4.4.5 Should the Act apply to leases with an indefinite term of less than one year?
/Proposed recommendation 1.17: That section 13(1)(b) of the Act be deleted. /
Do you agree with the proposed recommendation? / No /
Comments:
The pending amendments to PPS leases to cover only transactions that exceed one year is sufficient protection for the short-term hire industry. /
4.4.6 Should the "one year" test be changed?