Australia: PPSA Changes: A mixed blessing for P&E hire companies

Last Updated: 18 October 2015
Article by Murray Thornhill

Plant and equipment hire companies have been celebrating amendments to the Personal Property Securities Act 2009. These amendments have been welcomed as allowing hire companies to save on compliance costs where:

  1. They lease out serial numbered goods (mainly motor vehicles) in the course of their business; and
  2. the term of the lease, or, where the lease is renewable, its aggregate term, is between 90 and 365 days.

On one view, the amendments may, in practice, help hire companies whose standard practice was to register a separate Personal Property Security Interest ("PPSI") for each individual hire, regardless of the circumstances, to save some money. In such cases, hire companies may instead choose to register a single "All Present and After Acquired Property" interest (All PAAP) against all the personal property owned from time to time by each of their customers. This will basically enable the hire company to secure each customer's debts against all of that customer's goods. That way, when the customer becomes insolvent, the hire company will have a priority claim against the proceeds of sale of the customer's goods that are not subject to any superior security interest.

So far so good, but the All PAAP that is now available to secure payment of rent and other charges due under short-term plant hire arrangements:

  1. has always been available; and
  2. unlike a PPS Lease, will not help the hire company which owns the equipment to protect that equipment from being seized and sold by its insolvent customer's liquidator to pay out the debts of other, priority creditors, even though those other creditors do not own the equipment and may never have owned it.

Does that mean nothing has changed, then? Not quite: in fact, far from giving plant and equipment hire companies more legal rights, the amendments have taken away rights that they used to have (but often did not know they had). Before 1 October 2015, a hire company:

  1. leasing out its mobile, serial numbered P&E for a term, or for renewable terms in the aggregate, of between 90 and 365 days; and
  2. seeking to protect its P&E from being seized and sold in the hands of its insolvent customers in order to pay out the debts of that customer's priority creditors,

were automatically given this protection under the Act without having to register anything. This is because:

  1. section 13 provided that the terms of hire and the nature of the hired goods meant that the hire arrangement itself constituted a PPS Lease;
  2. section 267 provided that the liquidator could seize and sell goods where the owner's security interest in those goods was unregistered, but only if section 268 did not say otherwise;
  3. before 1 October 2015, section 268 did say otherwise, in relation to a "security interest of a lessor...under a PPS Lease" for a definite, non-renewable or extendable term of between 90 and 365 days; and
  4. as at 1 October 2015, that exemption, which favoured short-term P&E hire companies, has been removed; and further
  5. from 1 October 2015, non-renewable/extendable P&E hire arrangements of 90 – 365 days' duration are no longer recognised as PPS Leases at all, even if they are registered.

In summary:

  1. before the 1 October 2015 amendments, hire companies were automatically protected from losing their P&E to the liquidators of insolvent customers, even if they did not register their PPS interest in that P&E, as long as the hire term was between 90 and 365 days; and
  2. after the 1 October 2015 amendments, hire terms of between 90 and 365 days do not attract this protection, even if the owner of the P&E registers its security interest in that P&E.

For most hire companies whose standard practice was simply to register every transaction on the PPS Register regardless of the nature of the P&E being hired out or the aggregate term of the hire arrangement, the amendments may well simplify compliance. But they do so at the expense of protections that hire companies once enjoyed from seizure and sale of P&E under medium-term (90-365 day) hire agreements.

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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Murray Thornhill
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