Public consultation on the Government's response to the statutory review of the Personal Property Securities Act 2009

There are many things in the Whittaker Review that remain relevant to the current environment. For example, improving education and awareness, clarifying the position with the s 19 attachment rule and lease chains, repealing section 588FL of the Corporations Act 2001 (Cth), and extending the application of the PPSA to fixtures.

However the proposed amendments to registering security interests are no longer relevant to the current environment. The landscape has changed since the Whittaker. Users of the PPSR are now used to its layout and are comfortable with it. There are innumerable registrations. The detailed information on the Register is also invaluable for searchers.

There is significant risk that rolling out recommendations 85 to 124 of the Whittaker Review may result in significant transitional costs to businesses and Government. This is in the current context of an inflationary environment and real challenges to the cost of living. Further it is not clear whether the Australian Government has clearly thought out the required transitional arrangements with implementing those registrations.

I have three concerns.

One, the reforms to registering and the register ignore that 8 years have passed and things have changed. Most people are used to the current registration system. Changing it creates greater uncertainty and cost.

Two, the response has ignored some strong suggestions in this year's Corporate Insolvency in Australia Report from the Parliamentary Joint Committee on Corporations and Financial Services. As some of those suggestions contradict the government's approach, I encourage the government to reconsider the amendments in light of that Report.

Three, the Government has not properly responded to several recommendations. The refusal to repeal section 588FL of the Corporations Act 2001 (Cth) and clarify the elements 'rights in the collateral' in section 19 of the PPSA are examples.

The overhaul of the register and registering complicates things. Apart from people already being used to the current system the changes are radically different from anything overseas.

Treat as continuously perfected.

The main operational and practical consideration is about avoid unnecessary cost and uncertainty for businesses. The changes to the registration system are the opposite to that.

Education and awareness remains a significant issue. There remain businesses who do not know about the PPSA or its benefits at all.

No comments about the Amendment Bill as a whole.

I support the Australian Government’s response to accept to consider/consult recommendation 42. Further, I encourage the Australian Government pursues this consultation expeditiously.

Security interests in goods that become fixtures are a headache for suppliers of goods. The goods may include for example the concrete laid on the land, the tiles used for a swimming pool, or adhesives used in building sites. The supplier may not have any contractual relationship (and consequently any security interest) with the landowner. In contexts where the goods are inevitably destined to become part of the land this creates disincentive for the supplier to register on the PPSR at all.

I am critical of the Australian Government's approach with recommendation 51 (which needs to be read with recommendation 170).

I consider that the Australian Government has not sufficiently addressed recommendations 51 or 170. The Recommendations Index confirms that the Australian Government accepts recommendation 170 but does not comment further on the basis that no legislative amendment is required. The Recommendations Index also notes that the Australian Government accepts recommendation 51 in part and refers to paragraph 105 of the Explanatory Memorandum for Schedule 3 of the Exposure Draft Personal Property Securities Amendment (Framework Reform) Bill 2023.

However paragraph 105 glosses over the issue. It does not provide the clear guidance that the Whittaker Review found was missing in the PPSA. It suggests that the ‘unitary’ model applies but does not provide any explanation for why. With paragraph 105, the Australian Government is not providing ‘possession’ model stakeholders (or ‘unitary’ ones for that matter) the opportunity to present their arguments in support. Based on the consultation materials the Australian Government, contrary to the Recommendations Index, is not accepting either recommendation 51 or 170 but is instead expressing an opinion that the ‘unitary’ model applies.

Legally this issue remains very uncertain. The issue has already been on the radar of Australian Courts but it was not resolved in the Atlas CTL litigation. It has also been the subject of litigation with very different outcomes in Canada. Resolution of this issue is important commercially and legally for businesses dealing with lease chains.

I am critical of the Australian Government's approach with recommendation 170 (which needs to be read with recommendation 51).

I consider that the Australian Government has not sufficiently addressed recommendations 51 or 170. The Recommendations Index confirms that the Australian Government accepts recommendation 170 but does not comment further on the basis that no legislative amendment is required. The Recommendations Index also notes that the Australian Government accepts recommendation 51 in part and refers to paragraph 105 of the Explanatory Memorandum for Schedule 3 of the Exposure Draft Personal Property Securities Amendment (Framework Reform) Bill 2023.

However paragraph 105 glosses over the issue. It does not provide the clear guidance that the Whittaker Review found was missing in the PPSA. It suggests that the ‘unitary’ model applies but does not provide any explanation for why. With paragraph 105, the Australian Government is not providing ‘possession’ model stakeholders (or ‘unitary’ ones for that matter) the opportunity to present their arguments in support. Based on the consultation materials the Australian Government, contrary to the Recommendations Index, is not accepting either recommendation 51 or 170 but is instead expressing an opinion that the ‘unitary’ model applies.

Legally this issue remains very uncertain. The issue has already been on the radar of Australian Courts but it was not resolved in the Atlas CTL litigation. It has also been the subject of litigation with very different outcomes in Canada. Resolution of this issue is important commercially and legally for businesses dealing with lease chains.

I do not have any comments relating to the amendments in Schedule 4 of the Amendment Bill.

I do not support recommendations 85 to 124.

Fast forward to late 2023 and the landscape since the Whittaker Review has changed. Users of the PPSR are now used to its layout and are comfortable with it. There are innumerable registrations. The detailed information on the Register is also invaluable for searchers.

There is significant risk that rolling out recommendations 85 to 124 may result in significant transitional costs to businesses and Government. This is in the current context of an inflationary environment and real challenges to the cost of living.

The Australian Government has also not fully thought through the transition of the existing registrations into the new regime.

There are also specific concerns as follows.

Contrary to recommendation 95, the registrant is obliged to include details of all collateral classes in the free text field by proposed regulation 20(3) of the Exposure Draft Personal Property Securities Regulation 2023. I suggest that a better solution is to adopt one similar to New Zealand or Ontario and permit the registrant to select multiple collateral classes in check-boxes.

Recommendation 116 and item 23 of Schedule 5 of the Exposure Draft Bill contradict s 21(4) of the PPSA which provides that a single registration ‘may perfect one or more security interests.

Item 5 of the table in item 23 of Schedule 5 of the Exposure Draft Bill caps registration periods at a maximum of 25 years. That proposed amendment departs from recommendation 123 of the Whittaker Review that ‘the Act not be amended to impose a maximum registration period of 7 years for all registrations'. Moreover though it ignores that numerous security agreements (in particular retention of title arrangements) contemplate indefinite ongoing dealings between the parties.

I do not support recommendation 158 or the Government response and refer to paragraphs 12.67 and 12.68 of the Parliamentary Joint Committee on Corporations and Financial Services Report on Corporate insolvency in Australia (July 2023).

I add that a rectification power is inappropriate for defects that frustrate the grantor detail or serial number search functions. However, it is appropriate for items such as where the registration is ineffective over a wrong collateral class or a description in the free-text field that is deemed defective. There are numerous Canadian cases where security interests have been subordinated over these defects where the evidence and Register itself clearly identifies the collateral claimed. A rectification power is also appropriate where a registrant neglects to indicate a purchase money security interest is claimed. Indeed, that offers a different approach to the Whittaker Review recommendation 90 that item 6 of the table in s 153(1) be deleted. Providing a power to rectify registrations offers an opportunity to mitigate the PPSA’s potential harsh impacts on small businesses.

Items 31, 46, 47, 48 and 49 of Schedule 5 of the Exposure Draft Bill also adopt recommendation 159 of the Whittaker Review that s 186 ‘be amended to make it clear that it applies only to data that was removed from the Register by the Registrar.’ Administrative errors resulting in the incorrect removal of registrations happen in practice. That is shown by several Australian court cases. It is appropriate that s 186 remain unamended giving secured parties the opportunity to restore registrations when incorrectly removed.

On recommendation 139 and item 43 of Schedule 5 of the Exposure Draft Bill I comment that in practice I have generally found that the amendment demand process works well when the parties cooperate. The challenge though is when secured parties no longer have a security interest in collateral, are given an amendment demand, but then do not remove their registrations or take many weeks to remove them. There are case law examples of this challenge. The secured parties involved not only include smaller businesses but also large financial institutions and their administrative functions. These types of delays can prejudice grantors when selling their business or obtaining a refinance.

I do not have any comments relating to the amendments in Schedule 6 of the Amendment Bill.

I strongly disagree with the Australian Government's rejection of recommendation 362. A failure to repeal section 588FL of the Corporations Act 2001 (Cth) is a missed opportunity to improve the laws.

I do not accept that s 588FL protects against fraudulent claims. For example, if the security agreement is entered and registered one week before a liquidator is appointed, the security interest does not vest under s 588FL(2)(b)(ii). Further I do not see why ‘fraudulent claims’ would not already be dealt with under the other voidable transaction provisions (such as uncommercial transactions, insolvent transactions, unfair loans or creditor-defeating dispositions).

I agree with the reasoning in paragraph 9.2.2.1.2 of the Whittaker Review.

I also note the support of recommendation 362 in the Parliamentary Joint Committee on Corporations and Financial Services Report on Corporate insolvency in Australia at paragraph 12.69.

I have provided these in previous comments.

I do not support recommendation 149 with the establishment of a register of construction and heavy industry machines. More cost. Just keep it to the PPSR.

I do not express a view on the other recommendations.

Yes. I have prepared a Word Document submission which I will email separately.