The Senate Committee on Legal and Constitutional Affairs (Committee) recently conducted an inquiry into the 2009 Bill. This inquiry has now been concluded and the Committee's Report was released on 20 August 2009.
The purpose of this Update is to advise on the Committee's findings and provide guidance as to how the Personal Properties Securities (PPS) process is to proceed.
The Committee received 26 submissions in respect of the inquiry, including, interestingly, from the Attorney General's Department.
In addition to the submissions, the Attorney General's department provided specific answers to issues raised by the various submissions and provided such answers to the Committee.
It is clear from the submissions made and the Committee's Report that the general view is that there has been insufficient time allowed for consideration of the 2009 Bill by all relevant stakeholders. Concerns have been raised that given the significance of the proposed PPS regime, more time is required for all stakeholders to obtain a clear understanding of all aspects of the regime and to raise all of the issues that need to be taken into account in finalising the legislation.
The Committee sought to balance the need for further discussion to occur in relation to the Bill with the fact that the New South Wales Parliament had passed referring legislation in respect of the Bill (as currently drafted). In addition, the Committee mentioned that in other States, the legislative process is well under way.
As a result, the Committee needed to consider which of two options should be adopted in relation to amendments still to be made to the Bill. These options were:
- 'To follow the usual process of the government amending the Bill and reintroducing it or making amendments to the Bill in Parliament before it is passed; or
- Passing the Bill as introduced (on identical terms to that already passed by New South Wales) and making any amendments in a proposed consequential amendments Bill that (when passed) would take effect immediately.'
The Committee has adopted the second option but only on the basis that the Bill is passed subject to a commitment from the government to:
- 'Thoroughly consider all concerns brought to the government's attention about the Bill until 30 September 2009, including the concerns raised in the submissions to the inquiry;
- Provide greater transparency by making public its response to the concerns raised and by providing as much information as possible to stakeholders about policy considerations and choices. This could be done using the Department's website; and
- Include in a consequential amendments Bill to be debated in the Senate in association with the 2009 Bill and intended to take effect immediately after the commencement of the 2009 Bill all changes to the Bill identified as a result of concerns raised with this Committee and subsequently directed to the Department during the recommended further period of consultation until 30 September 2009.'
On the above basis, the Committee has supported the Bill.
CONSEQUENCES OF COMMITTEE'S RECOMMENDATION
The recommendation of the Committee is unusual given that a number of concerns raised in submissions are significant and are likely to result in the Bill undergoing further substantial amendments. We agree with other parties who have lodged submissions that there does not appear to be any particular need for the Bill to be passed in its current form in the timeframe proposed and it would be preferable for the Bill to only be considered by the Senate once it is in a form that is generally regarded as acceptable to achieve the desired outcome of the reform.
Indeed, a large number of submissions indicated that the relevant stakeholders have not had sufficient time to consider the 2009 Bill comprehensively and accordingly have not identified all issues which need to be addressed. This further emphasises the need for debate on the Bill to be delayed until the Bill can be re-drafted.
The main areas of concern (as highlighted in our own submission) relate to:
- The inclusion of flawed asset arrangements as security interests when set off and similar arrangements are expressly excluded;
- The significant watering down of the effectiveness of charges over all present and future assets (due to the ability of various subsequent security holders or transferees of the secured property being able to either take priority over the holder of the charge or take the assets the subject of the charge free of the security interest);
- The vesting provisions applicable on insolvency whereby the holder of an unperfected security interest will lose its security and may, but only in limited circumstances, be entitled to claim damages in the winding up or bankruptcy of the grantor (rather than have access to the assets over which it holds security);
- The need to exclude from the operation of the Bill various arrangements which are commonly used in derivative markets;
- The adverse consequences of the above matters on lessors; and
- Whether the PPS Register will indeed provide the simplicity and certainty intended (given the ability of subsequent security holders or transferees of collateral to gain priority or take the collateral free of existing security interests, even if the existing security interest is registered).
If the Committee's recommendations are accepted, the Attorney General will need to quickly establish a mechanism by which stakeholders can communicate their suggested amendments to the Department. Parties will need to ensure that they engage with the Attorney General's Department prior to the end of September in order to assist the Department finalise the content of the proposed amending legislation.
Given the significance of the reform (and the length of time in which this reform has been considered for Australia), we do not understand the need for the process to be rushed and have doubts whether 30 September 2009 will provide sufficient time to agree not only the approach to be adopted in relation to the various areas of concern but also the drafting to be included in the amending Bill.
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