25 July 2014

PPSA Review Secretariat

Commercial and Administrative Law Branch

Attorney-General's Department

3–5 National Circuit

Barton ACT 2600

Also by email:

Dear Mr Whittaker,

REVIEW OF THE PERSONAL PROPERTY SECURITIES ACT 2009 (CTH)

The Law Institute of Victoria (“LIV”) and its members were pleased to have the opportunity to meet with you on 12 June 2014 to discuss the Government review of the Personal Property Securities Act 2009 (Cth) (“PPSA”), which you are leading.

As you are aware, the LIV wrote to the Honourable George Brandis QC on 19 December 2013 in relation to issues our members have experienced with the PPSA. Enclosed for your reference is a copy of that letter.

We are pleased to have the opportunity to provide you with formal submissions to assist you with your review of the PPSA and the Personal Property Securities Register (“PPSR”).

This submission is based upon comments sent to the LIV by its members, many of whom are small businesses and many of whom also act for small business operators. Accordingly, many of the recommendations made by the LIV, would, if implemented, benefit both LIV members and their clients who operate small businesses.

Essentially practitioners and their clients are saying that the law is uncertain in many instances, the process to register is too complicated and the register is not helpful.

For example, the LIV has been informed by its members that rather than registering in accordance with the PPSA, in some instances registrations are being made due to legislative uncertainty and for the purpose of avoiding the ramifications of not registering.

Complexity of the Personal Property Securities Act 2009 (Cth)

Following are some issues and suggestions that our members have raised:

Cash deposits

There are views that both cash deposits for the purchase of land or a security deposit provided by a tenant could be subject to a security interest. The LIV suggests that amendments to sections 8 and 12 of the PPSA could be made so that ‘deposit’ is excluded for contracts of sale of land and all lease of land security deposits are excluded.

The LIV further suggests that there needs to be legislative clarity in relation to the application of the PPSA to land and residential land/lease related transactions. For example, clarification is required in relation to the application of the PPSA to fixtures and chattels. One solution may be to codify the

common law position in relation to goods and fixtures and insert a complete and thorough definition in the Act.

Releases

There are a number of different forms of release used by different financial institutions. The LIV submits that it would dramatically cut red tape when dealing with a secured party where there is a standard form of release to be prescribed by regulations.

The LIV is of the view that a form of release of any PPSA security interest should be prescribed like the previous form ASIC 312.

List of items excluded from the PPS lease definition

The LIV considers that the list of items excluded from the definition of “PPS lease’ in section 13(2) of the PPSA should be amended to refer to landlord’s personal property leased to the tenant, where the lease of the personal property is incidental to the lease of the land.

Meaning of PPS lease – bailments for value

There is uncertainty about the meaning and operation of section 13 of the PPSA in light of subsection 13(3). It is not clear in which circumstances a bailee (rather than a bailor) provides value for the purposes of section 13.

In practice it has been necessary to assume that the bailee provides value in the sense that there is consideration sufficient to support a contract including an antecedent debt or liability (as provided in the definition of ‘value’ in section 10 of the PPSA). The operation of subsection 13(3) is unclear and would benefit from legislative amendment to clarity its meaning and operation.

Additionally, small businesses would benefit from greater certainty surrounding what constitutes a ‘PPS lease’ (i.e. do agistments and grain storage fall within the definition?). This could cut red tape by minimize large and unnecessary registrations. Comprehensive information should be made available to provide guidance on this issue.

Timeframe for registration

The timeframe for registration of a security interest is only15 days for a PMSI and otherwise 20 business days after the security agreement that gave rise to the security interest is created. The LIV submits that it should be increased to 45 business days as was previously the case.

In light of the complexity of the PPSA and the anecdotal reports the LIV has received regarding the confusion the PPSA is causing in practice and for business, the LIV queries whether there is, or should be, scope to establish a private ruling system (i.e. like with GST). This would assist with providing greater certainty and consistency for practitioners.

The LIV otherwise notes that a number of authors have raised matters which need to be addressed in relation to the PPSA.

In particular the LIV refers to the following two texts:

  1. Lionel Meehan – The PPSA Guide

For example, refer to pages 62 – 67 where a ‘too hard basket’ list is provided to which it is unclear whether the PPSA applies.

  1. Del Ceste and Anne Wardell – Understanding Personal Property Securities Law (2nd edition)

Refer to pages 18, 25, 30, 67, 85, 117 and 131 for examples of matters which need to be addressed.

Personal Property Security Register

The LIV has significant concerns about the PPSR and its operation. Following are keys issues and concerns identified by the LIV and its members:

Searching the PPSR

LIV member feedback indicates that the PPSR is difficult to search. Particular searching issues are as follows:

  • Searching the ACN, the ABN and the company name may produce different results. This necessitates multiple searches in respect of the same grantor to ensure that all security interests are revealed;
  • When searching using an individual’s name, it is not possible to search simply by name;
  • The date of birth of the individual is a mandatory requirement when searching an individual. However it is not always possible to obtain the (correct) date of birth of the individual. In this regard the LIV refers to its contact of sale of real estate which includes a PPSA special condition that requires the vendor to disclose his/her date of birth. The State Government has approached the LIV about including the LIV’s special conditions in the Estate Agents (Contracts) Regulations 2014. The State Government has noted that they are unlikely to include the PPSA special condition in the Regulations insofar as it requires the vendor to disclose his/her date of birth because mandating the disclosure of such personal information could be in breach of the Charter of Human Rights and Responsibilities Act 2006;
  • The LIV understands that the Register uses ‘exact match’ searching, and that the search engine removes extraneous data. There is a concern that the searching facility is not case sensitive and ignores spaces between characters. For example, the name ‘Jon Quill’ when searched, matches ‘JONQUIL’ (one word, no spaces). The LIV otherwise notes that punctuation in grantor names and certain ‘noise’ words such as ‘the’, ‘and’ and appellations such as ‘Mr’ are ignored. This appears to be inconsistent with the concept of a system purporting to provide exact match searching;
  • All VINS were migrated to the Register in the names of organisations, even where the original registration was in the name of an individual. This means that to search it is necessary to input the individual’s name into the ‘organisation’ field;
  • The interests relating to ‘yellow goods’ (for example, earth equipment) were migrated under the product identification number rather than the VIN. This means that when searching the Register for such goods or equipment, it is necessary to input the product identification number rather than the VIN. However, many parties are unaware of this and ultimately a party searching using the VIN for ‘yellow goods’ is entitled to take free of the security interest under section 45 of the PPSA. This is a particular issue in Western Australia in relation to mining equipment; and
  • It is not possible to perform a search for details of all charges registered in the name of a particular secured party grantee. It is submitted that this would be of assistance, particularly for legal practitioners acting for vendors in sale of business transactions where the business involves (as grantee), for example, hire purchase arrangements, leasing out and consignments.

Registering a security interest

The LIV is concerned about the processes to register a security interest. LIV members have reported that:

  • The tick-a-box and drop box process for selection of collateral is confusing. It is easy for the incorrect box to be ticked. The LIV suggests that it would be useful to have tutorials and explanations ‘along the way’ providing guidance regarding each tick box and drop box;

  • It is not possible to change a secured party group once it has been created. It is necessary to create a new group and re-register with revised information. This could result in a significant number of inadvertent mistakes made by users when registering interests. There should be scope to correct such mistakes without affecting the validity of the registration;
  • According to the register it is not possible to register more than 39 persons for a secured party group.One member has informed the LIV that the system would not allow them to register 41 parties. They were informed by the register that the maximum was 39 and that the register had no way of fixing this problem.This is unacceptable. There should be no limit to the number of parties; and
  • There can be confusion in relation to the scope of a security interest. The LIV suggests that it should be compulsory to file a copy of the actual security agreement so that a copy can be obtained to determine to which personal property the interest applies. This would be consistent with the previous ASIC system. This would also prevent situations here registrations are being made before security agreements are executed.

The LIV believes that currently the PPSR is an extremely complex register that is in need of improvement to address the above issues and to simplify the searching and registration processes. It would be most helpful to have online tutorials and written material so that stakeholders and the general public have guidance regarding the registration and searching process. For example, there could be tutorials for the ‘top 10’ registrations. This would avoid the ‘just in case’ registrations that stakeholders are making due to the severe ramifications of not registering.

There should also be a ‘help line’ which is attended by lawyers so that users who are encountering difficulties have a point of contact. Anecdotally the LIV is informed that currently staff at the PPSR are either unable or not willing to assist stakeholders who are encountering problems. This could be in part due to the general lack of understanding amongst stakeholders and the general public about the PPSA and PPSR.

If you would like to discuss any of the above comments in further detail, please contact Prue Long, LIV Property & Environmental Law Section Lawyer, on 9607 9522 or .

Yours sincerely,

Geoff Bowyer

President

Law Institute of Victoria

Encl.

Letter from the LIV to the Honourable George Brandis QC dated 19 December 2013