If you lease aircraft and/or aircraft engines, the Personal Property Securities Act 2009 (Cth) (PPSA) no doubt gave you a lot of headaches! Overnight, the majority of the leases you had been entering into would have become security interests for the purposes of the PPSA. You would then have had to register these security interests on the Personal Property Securities Register (PPSR) to protect yourself from a lessee or a buyer taking free of your interest.
Not only that, aircraft engines are a serial numbered property for the purposes of the PPSA. Your security interests would have had to be registered by a serial number, meaning that you would have had to work out how to effect serial numbered registrations on the PPSR.
What are the reforms?
On 1 October 2015, a significant reform to the PPSA took effect. The reform will mean that leases for less than 12 months will no longer be security interests for the purposes of the PPSA. Consequently, you will no longer need to register these on the PPSR unless they are ‘in substance’ security interests that secure the payment or performance of an obligation (for example, finance leases). If you lease an aircraft and/or aircraft engines for less than 12 months, to avoid losing it if the lessee becomes insolvent, you will simply need to rely on proof of the aircraft’s ownership.
You will still need to register on the PPSR leases for 12 months or more and leases that secure the payment or performance of an obligation. You will need to register by serial number leases for aircraft and aircraft engines because they are both serial numbered properties for the purposes of the PPSA. The amendments will not affect leases entered into before 1 October 2015. You must still register these under the old regime.
What is the purpose of the reforms?
The reforms aim to help lessors comply with the PPSA and reduce the risk and cost for lessors who generally have to make fewer registrations on the PPSR. A hope for these reforms is that they will engage with some of the issues currently faced by lessors including:
- the risks of failing to register a security interest;
- the risks of registering a security 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 affected and maintained; and
- a lack of understanding as to whether a lease is a PPS Lease and/or an in substance lease requiring registration or not.
We cannot overstate the importance in making sure you understand the provisions of the PPSA and the implications for failing to register your security interests or registering them incorrectly. If you have not already done so, you should ensure that you are registering your aircraft and/or aircraft engine leases correctly against the new reforms.
If you need any advice about the reforms, what they mean for your business, what registrations you should be affecting and whether you need to update your standard terms and conditions to reflect the new regime, please let us know. One of LegalVision’s PPSA specialists would be delighted to assist!