Australia's corporate insolvency system 'is overly complex, difficult to access, and creates unnecessary cost and confusion for both debtors and creditors', according to a Parliamentary report released last week.
On 12 July 2023, the Parliamentary Joint Committee on Corporations and Financial Services presented its final report on Corporate insolvency in Australia, recommending a comprehensive review of insolvency laws.
A cynic may say that the Personal Property Securities Act 2019 (PPSA) is well-suited to that system. Certainly, the Committee validated that view, acknowledging 'continuing concerns about awareness, ease of use, and accuracy of the PPS Register'.
With one exception, the Committee did not enter the fray on how to simplify the PPSA. Rather, it prodded the government to respond to the Whittaker Review and consider adopting its recommendations where the benefits outweigh the costs.
Nonetheless it appears from the report that there is bipartisan policy support to prioritise improving the PPSA. Notably, the Committee considered that changes recommended by the Whittaker Review 'should proceed without waiting for the comprehensive review' advocated for insolvency laws by the Committee. The Committee also showed willingness to depart from recommendations advocated by the Whittaker Review.
Below, I outline the main PPSA policy concerns addressed by the Committee where the public may expect to see legislative change.
Make the PPS Register easier for stakeholders
Numerous submissions to the Committee criticised the complexity and accuracy of the PPS Register. A lack of awareness of the PPS Register, especially among small businesses, was also observed. The Committee noted the evidence of Mr Whittaker as a witness before the inquiry. He indicated:
".the complexity of the PPS Register makes it very difficult, even for people with extensive legal training to sometimes understand how to make an effective registration. For small businesses that do not have the knowledge or access to legal advice, it can be even more challenging for them to make registrations in a way that can leave them confident that they have done it correctly."
The Committee didn't express a view on how to fix this. It acknowledged potential costs to business with changing the PPS Register. However, it recommended that the government consider adopting the Whittaker Review recommendations where benefits outweigh costs. It recommended changes should be made to the PPS Register without waiting for a comprehensive review of Australia's insolvency laws.
Possible mercy for incorrect registrations in insolvencies
The Committee observed that the change to the PPSA's vesting rules created a significant dislocation to long-standing business practices of many retention of title suppliers (many of whom are typically small businesses). It took the view that it may be appropriate to reconsider whether it is reasonable to have a mechanism for rectifying an incorrect PPS registration that may result in the loss of the security interest due to it vesting in the grantor's insolvency. On this point it took a contrary view to the Whittaker Review's recommendation against this.
Repeal section 588FL of the Corporations Act 2001
The Committee noted that section 588FL vests security interests in the insolvent corporate grantor even if the registration is correct. The Whittaker Review recommended repealing section 588FL because it only applies to corporate grantors, and its deadlines are problematic and don't meaningfully improve incentive to register quickly. Stakeholders overwhelmingly supported that recommendation. The Committee willingly 'jumped on the bandwagon' and supported the Whittaker Review's recommendation.
Careful with moving the circulating asset provisions to the Corporations Act 2001
The Whittaker Review recommended moving the circulating asset provisions in the PPSA to the Corporations Act 2001. Whilst acknowledging support for that recommendation, the Committee noted that the Whittaker Review didn't address the parallel Corporations Act 2001 circulating asset provisions. The ramifications with changes to the law affecting priority contests between liquidators and employees also weighed on the Committee. Accordingly, the Committee determined that changes to the circulating asset provisions should be considered as part of the comprehensive review of Australia's insolvency laws.
Find out more about the PPSA
Read our Plain English Guide to the PPSA and PPSR for a succinct overview of the legislation and its implications.
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.