Australia: Personal Property Securities Bill 2009

Last Updated: 18 August 2009
Article by David East, Peter Faludi, George Marques and Nigel Stranaghan

On 19 March 2009 the Senate Committee on Legal and Constitutional Affairs (Committee) released its recommendations on the Exposure Draft of the Personal Property Securities Bill 2008 (2008 Bill) following its inquiry on the 2008 Bill, which itself was a revised version of an earlier draft Bill which had been prepared and released for discussion in May 2008.

Following on from the recommendations of the Committee, the Personal Property Securities Bill 2009 (2009 Bill) was released in June 2009.

The Committee called for submissions on the 2009 Bill by 31 July 2009. In our submission on the 2009 Bill we raised a number of continuing concerns, of which the main ones are summarised below.

Date of implementation

The Committee made 11 recommendations, including that the introduction of the proposed legislation be delayed by at least 12 months until May 2011 to enable recommendations of the Committee to be implemented and for further advice of stakeholders to be taken into account. The Federal Government has agreed to delay the introduction of the PPS system until May 2011. For the reasons mentioned below, it is our view that such delay is necessary to ensure that the commercial community understands the operation of the proposed legislation.


The Committee recognised the need for the 2008 Bill to be simplified and suggested that there be substantial redrafting, clarification and simplification before it is presented to Parliament. On this score, the 2009 Bill has not achieved the desired results.

The 2009 Bill continues to be complex. The complexity of the Bill is added to by the complete reorganisation of section references and replacement of provisions (without cross referencing by way of note or otherwise to the equivalent provisions in the 2008 Bill).

In addition, the 2009 Bill continues to involve many concepts and scenarios which are unfamiliar to the commercial community at large or arise in only limited circumstances.

Acting in a commercially reasonable manner

On reviewing previous drafts of the Bill, the commercial community raised a concern in relation to the proposed requirement that parties 'act in a commercially reasonable manner' in relation to the exercise of all rights, duties and obligations under a security agreement or the Act. The main reason for the concern was the uncertainty as to what this duty required and the possibility of parties taking advantage of the uncertain wording to frustrate secured lenders in the exercise of their rights in circumstances of default (or otherwise).

Although the Committee recommended that this duty be retained, the 2009 Bill has taken account of commercial concerns. The requirement has been narrowed so that instead of applying to all rights, duties and obligations that arise under a security agreement or the Act, the 2009 Bill now provides that this requirement is limited to rights, duties and obligations arising under the enforcement provisions of the Bill (see section 111 of the 2009 Bill).

Notwithstanding this, section 131 of the Bill also imposes an obligation on a secured party which is disposing of collateral on enforcement to exercise all reasonable care:

  • if the collateral has a market value at the time of disposal, to obtain at least that market value, or
  • otherwise, to obtain the best price that is reasonably obtainable at the time of disposal, having regard for the circumstances existing at that time.

Although this duty is consistent with section 420A of the Corporations Act, it does raise the question as to how this duty works together with the general duty contained in section 111. In most circumstances this should not be a concern, although we query why 2 separate duties need to apply in relation to enforcement.

Importantly, the duties in the 2009 Bill are not applicable to a receiver or receiver and manager or controller of the property as defined in the Corporations Act. Accordingly in relation to enforcement of a security over personal property granted by a corporate entity, it would appear that the existing duties in the Corporations Act will be the only ones that will apply if enforcement is to be achieved by way of the appointment of a receiver or receiver and manager or other controller (as defined in the Corporations Act).

Impact on lessors

The potential adverse impact of the 2008 Bill on lessors was accepted by the Committee, which recommended that consideration be given to improving the priority of unperfected lessors have against unsecured or other unperfected interests in goods.

Our review of the 2009 Bill does not indicate that any amendments have been made in relation to the operation of the Bill in relation to lessors. In particular, notwithstanding that a lessor will retain title to the collateral, if the lessor fails to perfect its security interests by registration prior to the lessee being wound up, entering into administration or, in the case of a natural person, becoming bankrupt, the security interest held by the lessor (essentially being its interest in the collateral) will continue to vest in the grantor (lessee). This adverse consequence will not apply in the case of a PPS lease which does not secure payment or performance of an obligation (which presumably would never be the case), relates only to serial numbered goods and has a period of between 90 days and less than one year in duration.

We do not understand why the exclusion from such an adverse consequence is limited to such a narrow circumstance. Given the fundamental change to the rights of a lessor, the consequence should not apply to any lessor.

Although the Bill provides that a lessor under other PPS Leases will have been taken to have suffered damage immediately before the vesting of the security interest in the grantor and may recover compensation from the grantor, this provides little comfort to a lessor who previously was the owner of goods and, under the new regime, will have lost ownership by the mere fact that it had not registered its interest under the PPS system.

Whereas under the current law, the lessor would be entitled to repossession of its asset which it could then sell to recover the amounts owing to it, under the 2009 Bill, in the absence of perfection prior to insolvency, all that the lessor will be entitled to is to prove as unsecured creditor for its damage which, in most circumstances, will result in a far lower recovery than under the current law.

The ability of a secured party to recover compensation should not be limited to a consignor, lessor or bailor but to any secured party who is adversely affected by the vesting of security interests provided for in section 267(2).

There are other provisions which remain in the 2009 Bill which work against the interest of lessors. For example, under section 43(1), a buyer or lessee of property, if it pays value for the property, obtains such property free of an unperfected security interest in the property. This rule is not qualified by reference to knowledge (actual or constructive) nor does it require the value provided to be consistent with market value. Given the consequences to the security holder, the section should be amended to require market value to be paid by the buyer or lessee.

Given the above comments it appears that the recommendation of the Committee in relation to improving the priority of unperfected lessors has not been accepted.

Review of operation of PPS

The Committee recommended that the Bill include a requirement that it be reviewed three years after it commences in a process that includes extensive consultation with relevant stakeholders.

This recommendation has been accepted. Section 343 of the 2009 Bill (being the last section of the Bill) obliges the relevant Minister to cause a review of the operation of the Act to be undertaken and completed within three years after the registration commencement time. The registration commencement time is described as being the first day of the month that is 26 months after the month in which the Act is given Royal Assent or an earlier time determined by the Minister.

Other matters

Flawed asset

Flawed asset arrangements are now expressly included as being security interests even though any right of setoff or right of combination of accounts and any right or interest held by a person, or any interest provided for by any transaction, under an approved netting arrangement, close out netting contract or market netting contract are expressly excluded from the operation of the Bill.

As a flawed asset arrangement is generally linked to a setoff arrangement, it is unclear why it is expressly included as a security interest when the set-off arrangements (and market netting arrangements) are expressly excluded from the 2009 Bill.

Constructive knowledge

One of our previous concerns in relation to the 2008 Bill (and the May 2008 Bill) was that there are a number of provisions in the proposed legislation which allow a transferee of personal property (which is subject to a security interest) to take the property free of the security interest. The provisions allowing the transferee to take personal property free of a security interest often depend upon whether the transferee had knowledge of either the existence of the security interest or the breach of the security interest resulting from the transfer.

The 2009 Bill contains a new Section 299 which attributes knowledge to a transferee if it is related to a transferor. The section provides added protection to financiers in that they will not be prejudiced as a result of fraudulent or other deliberate activities undertaken to defeat the interests of a security holder in personal property. Section 299 requires the transferee to establish beyond reasonable doubt that it did not have actual or constructive knowledge that the acquisition was a breach of the security agreement to which the personal property is subject or that security interest was in existence and that it gave value for the interest acquired.

This is a significant improvement on previous Bills from the perspective of security holders as it will result in buyers who are related parties (as described in Section 299(1) (b)) of the seller having to ensure that the security holder releases the personal property from its security interest before it acquires the property.

Like the previous Bills, section 300 provides that a person will not have notice or actual or constructive knowledge about the existence or contents of a registration merely because data in the registration is available for search in the register. This seems to be inconsistent with the whole purpose of having a register and substantially detracts from the circumstances in which a person will have constructive knowledge.

PPS Navigator

We have previously developed a navigation tool which raises questions we believe are relevant to you in respect of the operation of the PPS system and which outlines the consequences arising from the questions and directs you to the relevant provisions of the Bill.

As the section numbers in the 2009 Bill are completely different to those in the June 2008 Bill (which themselves were different to those in the May 2008 Bill), we have once again updated our PPS Navigator to refer to the sections in the 2009 Bill. We attach this updated Navigator for your assistance.


Please refer to the following sections of the draft Bill in considering the above questions.

1 Section 10 definitions of collateral, personal property; section 12 definition of security interest; sections 8 and 12(6) exclusions

2 Section 10 definitions of account, chattel paper, commercial consignment and PPS Lease, section 12(3) and section 13.

3 Section 20 (particularly subsection (2)).

4 Section 19.

5 Sections 149-162.

6 Section 21, 22, 33-34 and section 100.

7 Sections 14 and 64(3).

8 Section 10 definition of possession and sections 24 and 20.

9 Section 10 definition of control, sections 25-29 as well as s.341.

10 Section 21(2)(c) contains list of property that can be perfected by control. Sections 25-29 outline how to take 'control'.

11 Section 10 definitions of consumer property, goods and inventory.

12 Section 340.

13 Part 2.5 of the Act (commencing at section 41), sections 89-91, 100-103 as well as the section 10 definition of knowledge and sections 295-300.

14 As per 13.

15 Sections 108-144 inclusive.

*Note: Above procedures do not apply to security interests over an account, chattel paper or a negotiable instrument (as to which see sections 120 and 121 PPSA).


1 Accessions: If the secured party has a security interest in tangible property (accession) which is installed in, or affixed to, other tangible property (improved property) and the secured party does not have security interest in the improved property, enforcement against the accession is to comply with sections 92-97.

2 Apparent possession can be taken if the collateral is of a kind that cannot be readily removed or easily stored. The secured party can dispose of the collateral on the premises-but can't cause the person in possession of the premises any greater

inconvenience than is necessary (s.126(1) & (2) PPSA).

3 Notice must be given to:

- The grantor of the security interest

- Anyone who has registration in the collateral at the time of giving the notice

- Any person who, at the time the secured party gives notice, the secured party knows has an interest in the collateral

- Any person who has given the secured party notice that the person claims interest in the collateral.

Note: Under section 115, a large number of provisions can be contracted out of if not consumer property.

To see this document in its entirety please click here.

© DLA Phillips Fox

DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.

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