Unless they are "in substance" security interests that secure payment or performance of an obligation, leases or bailments of serial numbered goods for a term of between 90 days and one year soon won't need to be registered on the Personal Property Securities Register, following the long-awaited passing of the Personal Property Securities Amendment (Deregulatory Measures) Bill 2014.
Why has the Personal Property Securities Act been amended?
When the Personal Property Securities Act 2009 was introduced, it deemed any lease (or bailment for value as part of a regular bailment business) of serial numbered goods that was for 90 days or more to be a security interest which needed to be registered on the Personal Property Securities Register in order to be perfected.
By "deemed" we mean this requirement to register arose irrespective of whether the lease in substance secured the payment or performance of an obligation. Some hire transactions (such as finance leases) secure payment or performance of an obligation and as a result would need to be perfected by registration irrespective of the term of the hire.
Small and medium hiring businesses – such as those hiring motor vehicles to the building and construction sector – voiced their concern about the deeming provisions. In order to protect their interests in goods from other creditors, these businesses are required to register security interests in respect of serial numbered goods that they:
- lease; or
- bail for value (as part of being regularly engaged in the business of bailing goods),
for a term of 90 days or more, even where the transaction does not in substance secure payment or performance of an obligation.
The aim of the reform is to simplify the deeming provisions in the PPS Act and to minimise the need for businesses to make registrations in respect of leases and bailments of serial numbered goods (motor vehicles, watercraft and aircraft) for a term of less than 12 months which are not "in substance" security interests. The Government estimates this simple change will save business over $11 million a year.
Leases and bailments of serial numbered goods that still must be registered
You must still register leases or bailments of serial numbered goods that are:
- "in substance" security interests securing payment or performance of an obligation (such as finance leases); or
- deemed but not "in substance" security interests with a term of less than 12 months and which are entered into before the amendment commencement date (yet to be announced) - the reform will not have a retrospective effect; or
- deemed but not "in substance" security interests with a term of more than a year or an indefinite period and which are entered into before or after the amendment commencement date.
Getting ready for this change to the PPS Act
At the latest, the change will come into force six months after the Act receives Royal Assent (which will happen very soon), but the Government may bring it into effect sooner. We'll keep you updated.
In the meantime, you should review your internal processes to ensure you are registering the leases that need to be registered and update your processes to ensure that, after the amendment is implemented, you discontinue registering leases which do not need to be registered on the PPS Register.
And there's more…
The statutory review of the PPS Act released earlier this year has recommended significant changes to the Act in respect of leases and bailments. The Government's response to that review is yet to be released. Watch this space.