Personal Property Securities Bill referral to Senate Standing Committee

Latest developments

Many of you would have read our previous Alerts regarding the proposed adoption in Australia of wide ranging personal property securities reforms. As a culmination of the public consultation process that has already been implemented by the Attorney-General's Department in relation to the new regime, the exposure draft of the Personal Property Securities Bill 2008 (PPS Bill) was referred to the Senate Standing Committee on Legal and Constitutional Affairs on 13 November 2008.

This referral brings the introduction of the new regime one step closer. The Attorney-General's Department has expressed the view that the proposed timetable for commencement of the new regime in mid 2010 remains unchanged.

You can view the exposure draft of the PPS Bill on the website of the Attorney-General's Department.

Wide ranging implications

A primary aim of the PPS Bill is to provide for the introduction of one national system to regulate the registration of security interests granted over all property other than real property, which will apply irrespective of whether a security interest is granted by an individual or a body corporate.

The reach of the legislation is however much broader than merely governing registration of securities granted in favour of banks and financial institutions. The legislation, by adopting a functional approach to the meaning of "security interest", will capture interests other than charges and mortgages. For example, it will regulate certain leases of personal property, transfers of accounts receivable and other choses in action and title retention arrangements. It will introduce a new priority regime to determine the outcome of competitions between two security interests and competitions between security interests and other types of interests. It will also introduce a new, largely optional, enforcement regime. Other reforms are also included in the legislation.

Changes from discussion draft

Since issuing a discussion draft of the Bill earlier this year, the Attorney-General's Department has consulted with the State and Territory governments as well as with the banking and financial services sector and the legal profession. The new exposure draft of the PPS Bill reflects this extensive consultation process. For example:

1. The provisions setting out the rules to determine the governing law of a personal property security interest have been deleted, given the general lack of consensus as to what those rules should be. As one of the primary aims of the legislation is to provide for legal certainty, the hope is that the Senate Standing Committee recommends a workable set of rules to be included in the Bill to replace the uncertainties of the existing laws.
2. There are special rules in the PPS Bill which apply to "investment instruments", including the perfection requirements for securities taken over those instruments. In the discussion draft of the PPS Bill, investment instruments was given a narrow meaning. This has been expanded and is now more reflective of market practice.
3. Fixtures and water rights are excluded from the operation of the new PPS regime. At the request of the State and Territory governments, security interests in fixtures will continue to be governed by the existing real property statutory regimes. Security interests in water rights will be governed by legislation that is being adopted by the States and Territories generally to regulate such rights.
4. The PPS Bill regulates transfers of "accounts" (which is defined to mean any monetary obligations, subject to exclusions for investment instruments and certain other categories of property), irrespective of whether those transfers secure the payment or performance of an obligation. The Bill, in response to widespread objections, now limits the circumstances in which such transfers are required to be registered on the PPS Register. This is the case as transfers of accounts which do not secure the payment or performance of an obligation will not need to be registered to ensure validity on the insolvency of the transferor.

What's next?

Even though the Attorney General's Department has listened to some submissions, there is scope to further refine the PPS Bill. The Senate Standing Committee has invited written submissions on the PPS Bill by 10 December 2008. The Committee will then conduct its hearings and report in February 2009.

Clayton Utz will be holding client seminars from early next year on the impacts the new regime. In the meantime, if you would like to know more about personal property securities reform, please contact Karen Lee.