The Australian Attorney-General has now released the Discussion Paper for the Regulations to be made under the Personal Property Securities Act.
The Regulations will contain many provisions which are relevant to the practical operation of the new legislation, including in respect of the personal property securities (PPS) register. As registration will be the key way in which security interests will be perfected under the new PPS regime, a detailed understanding of the Regulations will be important to banks, financial institutions and others that take or grant personal property securities.
The consultation draft of the Personal Property Securities Bill was released by the Attorney-General on 16 May 2008. As explained in our Alert of 19 May 2008, when that Bill (as it may be modified) becomes law, it will radically change the way in which security is taken over personal property in Australia.
The consultation period for the Bill has now ended, as the deadline for public submissions was 15 August 2008. The consultation undertaken on the Bill was extensive, with representatives of the Attorney-General's Department meeting with a large number of stakeholders who will be affected by the PPS reforms. As a result of that consultation process it is likely that there will be some changes made to the terms of the proposed legislation. It is expected that the next draft of the Bill will become publicly available in October 2008.
The Attorney-General is confident that the reform process is progressing well and the target commencement date for the legislation remains as May 2010.
Key issues from the Discussion Paper
Under the proposed legislation, for a security interest to obtain priority over other security interests and to survive if the grantor of the security interest transfers the secured property to a third party, that security interest will generally need to be perfected. In most circumstances, a key element of perfection will be registration on the PPS register (though it will also be possible to complete perfection by taking possession or control of the secured property).
Key provisions of the Discussion Paper dealing with the PPS register include:
- Registration must occur by reference to a class of collateral. The following are the proposed classes: current assets (other than inventory); motor vehicles; boats; airframes, aircraft engines, helicopters and aircraft; crops or livestock; "other" goods; transfers of accounts or chattel paper; chattel paper; documents of title; investment instruments/investment entitlements; "other" intangibles; all present and after acquired property; all present and after acquired property other than specified excluded property. Where a security interest covers collateral in more than one class (other than the last two classes), separate registrations are required.
- Inclusion of additional information etc: The Regulations will prescribe that, amongst other matters, the secured party registering a security interest may attach electronic files to the registration, indicate that the registration relates to a purchase money security interest and insert a more detailed description of the property to which the security interest relates in a free text field.
- When registration will be ineffective: Registration will be carried out directly by the secured party (not by a central registrar as, for example, occurs under the current ASIC company charges registration regime). Therefore the secured party will be responsible for ensuring that the information registered is correct. The consultation draft of the Bill set out certain information defects that would result in registration being ineffective. These include inserting incorrect registration numbers or ABNs. The consultation draft contemplated that the Regulations might include additional defects that will result in registration being ineffective. However, this is not currently contemplated.
- Details of subordination arrangements: Registration of subordination arrangements is not mandatory. If a secured party determines in its discretion to register details of any subordination arrangement, the Regulations will set out the details required to be included.
- Details to be included of grantors and secured parties: The Regulations will prescribe the level of detail required to describe both grantors and secured parties in the PPS register.
- Other: Other registration related matters which will be dealt with in the Regulations include details of interests other than security interests that may be registered, what property must be described by serial number (namely motor vehicles, boats and aircraft, in each case, used for consumer purposes), how security interests over the proceeds of secured property will be described and the like.
The Regulations will have a broader scope than registration related issues.
The Regulations will also provide for, amongst other matters:
- Exclusions and inclusions for particular defined terms: The consultation draft of the Bill contemplated that certain definitions may be altered by the Regulations. For example, section 21(4)(b) of that Bill provided that certain interests that would otherwise be security interests may be excluded by the Regulations. The Discussion Paper looks at whether any specific provisions should be included in the Regulations in relation to such matters.
- Relationship with other laws: The consultation draft of the Bill provides that the Regulations may prescribe that a failure to comply with the formal requirements of listed State or Territory laws does not affect the validity or effect of a security interest. The Discussion Paper lists the relevant State and Territory laws including, for example, State and Territory legislation dealing with bills of sale.
- Interaction between the PPS legislation and the Consumer Credit Code: As the PPS legislation and the Consumer Credit Code will operate concurrently, the Regulations will provide that compliance with particular provisions of the Consumer Credit Code will be deemed to be compliance with equivalent provisions of the PPS legislation.
If you would like to discuss the PPS legislation, the Regulations and the implications of the PPS reforms for your business please contact Angela Flannery.
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.