The Personal Property Securities Amendment (Deregulatory Measures) Act 2015 (Cth) (Act) amended the Personal Property Securities Act 2009 (Cth) (PPSA). The amendments will come into effect on 1 October 2015 and will decrease some of the headaches caused by the current regime.
The current regime
Currently, certain leases and bailments of personal property (i.e. most property other than real property) of a specified duration are considered PPS Leases, and therefore security interests, for the purposes of the PPSA. This is regardless of whether they secure the payment or performance of an obligation. The PPSA states that a lease or bailment will be a PPS Lease where it is:
- for an indefinite term;
- for a term of more than 12 months;
- for a term of up to 12 months but is automatically renewable or includes options to renew and the total term of such lease might exceed 12 months; or
- a lease of serial numbered goods for 90 days or more.
Accordingly, if you enter into a 90-day lease in respect of serial numbered property, it will be considered a PPS Lease (and, therefore, a security interest) for the purposes of the PPSA. The lessor should register its security interest in the serial numbered property by completing a serial numbered property registration. This registration will protect the lessor against the risk of extinguishment, namely:
- the buyer or lessee taking the property free of an unperfected security interest in that property;
- the buyer or lessee taking free of a security interest if that property is sold in the ordinary course of the lessee’s business; and
- the buyer or lessee of serial numbered property taking it free of any security interest where the lessor has not made a serial numbered property registration.
If a lessor enters into a lease that is for less than 90 days, it will not be considered a PPS Lease. Accordingly, unless it is an ‘in substance’ lease which secures the payment or performance of an obligation (and which is a registrable security interest) the lessor would have to rely on proof of its ownership of the property to avoid its loss in the event of the lessee’s insolvency.
The new regime
The effect of the Act is that, from 1 October 2015, leases or bailments of serial numbered property for a term of between 90 days and 12 months will no longer be considered PPS Leases (and therefore security interests) for the purposes of the PPSA. In effect, those leases or bailments will no longer need to be registered on the Personal Properties Securities Register, unless they are ‘in substance’ security interests that secure the payment or performance of an obligation (e.g. finance leases).
The Act will not affect leases or bailments entered into before 1 October 2015.
The purpose of the Act
The current regime is causing headaches for small and medium sized leasing businesses. Some of the issues they are facing are:
- The risks of failing to register a security interest, or registering an interest incorrectly;
- The cost of registering all registrable security interests (including seeking legal assistance if required);
- The administrative burden of making sure all registrations are effected and maintained;
- The confusion as to whether property is serial-numbered property or not and how registrations in respect of serial-numbered property should be effected; and
- A lack of understanding as to whether a lease is a PPS Lease and/or an in substance lease requiring registration or not.
The aim of the Act is to simplify compliance and reduce both the risk and cost for lessors who will no longer need to make registrations in respect of PPS Leases of less than 12 months. Instead, lessors who enter into a PPS Lease of less than 12 months will simply need to rely on proof of ownership of the property being leased to avoid losing the property if the lessee goes insolvent.
If you have not already done so, you should review your internal processes to ensure you are registering leases and bailments correctly and will continue to do so from 1 October 2015. If you need any advice as to what the Act means for your business; what registrations you will need to make from 1 October 2015; and/or whether your standard terms and conditions or other contracts require amendments to reflect the new regime, please let LegalVision know. One of our PPSA specialists would be delighted to assist!