What’s next with the PPSA and its complex PPSR?
The Personal Property Securities Act (PPSA), implemented in January 2012 with the Personal Property Securities Register (PPSR), replaced more than 70 different Commonwealth and State statutes relative to property and registration of legal entitlement to ownership.
The registry was intended to be a one-stop-shop for individuals and businesses to more easily and effectively establish that all-important entitlement. But alas the Act’s complexity has created a worrying gap intention and actuality.
Although compliance is patently in people’s best interests, most are not complying. There’s widespread lack of awareness let alone understanding of the Act, and its latest rules are very different in some critical aspects from laws that preceded them. This particularly applies to the SMS market.
It’s hardly surprising therefore that last year the Attorney General asked for a report reviewing the Act (see our article “Report of PPSA Review to be Tabled in Parliament” in News/Read More, page 2, at www.macksadvisory.com.au.
The report, "Review of the Personal Property Securities Act 2009 - Final Report", which has now been made available to the public, prompts the question: “What’s next?”
Some of the findings
While the report found that the PPSA has provided improved consistency for transactions dealing with personal property in Australia, it nonetheless recommended 394 amendments to the Act, many of them directed towards improving compliance.
The single National PPSR is acknowledged as a great move for business, but numerous issues with the functionality of the Register and its related web site are addressed.
Accordingly, it’s recommended that priority be given to simplifying the Register and its processes.
Unlike the former ASIC register, the new PPSR allows partial release of security interests. However, lending entities are simply providing one-page release forms on the sale of personal property subject to a security interest and are not amending their interest.
The report therefore questions the value of a PPSR that includes incorrect or out of date entries.
If you’re unaware of the PPSR and its function as part of the PPSA, if you’ve any questions about the register or have concerns arising from advice you’ve been given about it, don’t hesitate to contact Macks Advisory.
Complexities illustrated
It’s one thing to refer to the complexity of the Act; it’s another to see it.
For example: in the PPSA there’s provision in section 153, which together with Personal Property Securities Regulations 2010 (“Regulations”), prescribes a procedure requiring a grantor to be identified by a single identifier at any time in a financing statement.
This section of the Act, in conjunction with Regulation Schedule 1, 1.3, says that for a body corporate having an ACN, the prescribed details are “the ACN from the National Names Index maintained by ASIC”.
Specifically section 153(1), Item 2 of the Personal Property Securities Act 2009 (Cth) states that:
(a) if the collateral is consumer property and is required by the regulations to be described by serial number – no grantor’s details;
(b) if the collateral is consumer property and is not required by the regulations to be described by a serial number – the grantor’s name and date of birth, as evidenced in accordance with the regulations, and no other details;
(c) in any other case – the grantor’s details as prescribed by the regulations.
Schedule 1, Part 2.2, Division 1 of the Regulations provides that:
(a) the following classes of collateral, when described as consumer property must be described by serial number;
(iii) motor vehicles;
and
(c) the following classes of collateral, when described as commercial property, may be described by serial number;
(i) motor vehicles;
Now for a further layer of complexity.
Consider the definitions contained in the PPSA for consumer and commercial property.
Commercial property is defined by exclusion as “personal property other than consumer property.” Consumer property is defined for the purposes of the PPSA as, “personal property held by an individual, other than personal property held in the course of furtherance, to any degree, of carrying on an enterprise to which an ABN has been allocated.”
Look at the effect of interaction between these sections and regulations.
1. A body corporate with an ACN grants a security interest requiring registration. The property is required by the regulations to be described by serial number; and
2. A search of that body corporate’s ACN fails to show the registration in the result.
The defect renders the security interest ineffective pursuant to sections 164(1)(b) and 165 of the PPSA.
Consider this case study
In Future Revelation Ltd v Medica Radiology and Nuclear Medicine Pty Ltd [2013] NSWSC 1741 (referred henceforth as the “case”), centrally at issue was the defect in describing the secured party by ABN rather than ACN (as required by the PPSA).
The PPSA is modelled on Canadian legislation, which indicates that the test for whether such a defect is seriously misleading depends on “whether it will result in the registration not being disclosed in a search”.
The case hinged on whether, in the circumstances, the registration was invalid pursuant to section 164(1) of the Act by reason of it being “seriously misleading”.
Brereton J ruled that an error in the ACN or name of a secured party (where the serial number of the collateral was not required) will not be fatal because the registration will show on a search of the PPSR and will not be “seriously” misleading as stipulated by the Act.
However, Canadian case law has it that an error in the name of a grantor (where the serial number of the collateral is not required) will in fact be fatal, as it is misleading; see KJM Leasing Ltd. V. Granstrand Brother Inc, 1994 CanLll9153 (ABQB). Notably, the difference between Canadian and Australian PPSRs is that in Australia there is no ability to search security interests by reference to the secured party. Thereby, a misstatement of the grantor’s identity in Canada is a more serious matter than in Australia.
In any case, the fact an ACN search would not and does not show the security interest appearing in the search result – in circumstances where the Regulations state that the grantor must be identified by an ACN – renders such registration of the security interest ineffective.
This position is obviously inconsistent with the Act, which states that a grantor may register an interest in a motor vehicle by serial number where that vehicle is commercial property.
Significance of complexity
Thus the final report to Parliament on the Act identifies additional and unnecessary complexity worsened by such definitions of consumer and commercial property, and accordingly recommends removal of the distinction.
However, the report doesn’t consider implications this removal would have relative to other provisions of the PPSA.
Because there are many other examples of the interaction between the PPSA and its Regulations, as well as the interaction of these with other legislation, most people simply can’t deal with the resultant complexities. Accordingly, they either don’t bother using the PPSR, or if they do, they tend to register security of their property ineffectively.
Clearly improving the Act’s appeal and efficiency presents a formidable on-going challenge.
Meanwhile business owners, who don’t want to risk their livelihoods must come to grips with reality and it’s this; the Act is what it is, and they should seek the best available advice in order to make the legislation work for them.
For more information, contact Macks Advisory on 08 8231 3323 or visit our office at Level 8, West Wing, 50 Grenfell Street, Adelaide SA 5000.
