On 4 April 2014 the Attorney General announced that the Government will undertake a review into the Personal Property Securities Act 2009 (Cth) (PPSA). The review is to consider the operation and effects of the PPSA and will pay particular attention to the experience of small businesses.
An interim report is due by 31 July 2014, with recommendations on priority actions for the Government to consider. The interim report will focus on the issues raised by small businesses. The final report is due on 30 January 2015 and is expected to make recommendations on how to improve the Act, including simplification where appropriate.
Kott Gunning will be keeping a close eye on this and will provide an update following release of the interim report. This article seeks to briefly identify some of the PPSA related issues facing small businesses and the recommendations that the interim report may make.
Small business concerns
A letter from the Western Australian Small Business Development Corporation (SBDC) dated 16 June 2014 was sent to the PPSA Review Secretariat, highlighting a number of issues that the small business sector has experienced when interacting with the Personal Property Securities Register (PPSR). The key issues can be summarised as follows (in no particular order):
- confusion about the PPSR registration process;
- confusion regarding priority rules;
- confusion regarding complex legalistic terms used in the PPSA;
- costs of compliance;
- the time involved in registering security interests on the PPSR for some businesses, particularly hire businesses;
- lack of tangible benefits in using the PPSR;
- lack of support from the PPS Registrar; and
- the PPSR website is not user friendly.
Lack of awareness and understanding of the PPS system
The letter from the SBDC highlights a fundamental problem with the PPSR: lack of awareness. According to the SBDC:
"Perhaps this fundamental lack of understanding of the importance is the cause of what appears to be a complete lack of interest in the PPSR by some small businesses. If they do not understand the importance of the register and how it is relevant to them, then they will not invest the time and money into learning about the requirements of registering the security interests on it."
"There are many aspects of the PPSA that small businesses need to understand and be aware of in order to fully comprehend their rights and obligations and protect their legitimate interests. Firstly, they need to be aware of the importance of the PPSR to their business and the consequences of failing to correctly register a security interest in personal property. In the SBDC's opinion, this is a major hurdle to overcome."
Although the PPSA has been in place for over 2 years, Kott Gunning is acutely aware of this prevailing lack of interest and understanding in it. Despite Kott Gunning's roll out of a free PPS health check earlier this year (one hour free consultation on a no obligations basis), not a single business has contacted us to take advantage of this offer.
The problem seems to be a lack of appreciation of the potential impact of not registering a security interest. Despite some predictions, there have been very few cases before the courts since commencement of the PPSA. However, such lack of litigation is not necessarily a measure of the importance of the PPS regime.
As insolvency practitioners are all too aware, many businesses which have not implemented PPS compliance practices as part of a risk control measure, have lost significant asset value when a counterparty has gone into administration or insolvency. Suppliers to Forge Group, Gavin Constructions and Mi Constructions who had not previously understood the PPS regime are presumably now aware of it, albeit too late.
Interim report recommendations: an opportunity
It is to be hoped that the PPSA Review Secretariat will use this opportunity to recommend workable initiatives to bring the PPS regime closer to the small business sector.
The Personal Property Securities Amendment (Deregulatory Measures) Bill 2014 is currently before the House of Representatives. As indicated in our March legal update ("Significant Proposed Changes to the PPSA: What These Changes May Mean To Your Business") this Bill proposes to amend the PPSA so that leases of serial numbered goods of 90 days or more will no longer be deemed to be PPS leases for the purposes of the PPSA: no doubt a welcome change for the hire industry. It is envisaged that the interim report will broadly recommend approval of the changes proposed by this Bill.
Generally, there would be a benefit to small businesses (and wider) if the Government were to embark on an advertising campaign to highlight the importance of the PPS regime. The marketing costs would conceivably be recouped through an increase in PPSR registrations.
It is hoped that other recommendations that may help raise the profile of the PPS regime will include initiatives for the simplification of some of the key terms used in the PPSA and a simplification of the registration process itself.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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