Changes to personal property security framework – five things you need to know
By Emma Donaghue and Kate Dart
The Federal Government announced a broad reform package related to the personal property security (PPS) legislative framework in September this year. This reform is in response to the 2015 statutory review of the Personal Property Securities Act 2009 (Cth) (PPS Act) (Whittaker Review). The Whittaker Review made 394 recommendations aimed at reducing the complexity of the PPS legislative framework.
The Government proposes to implement approximately 88% (345) of the Whittaker Review recommendations, either in full or partially, to amend the PPS legislation. As part of the reform package, exposure drafts of the Personal Property Securities Amendment (Framework Reform) Bill 2023 and the Personal Property Securities Regulations 2023 have been released. Public consultation on the exposure drafts closed on 17 November 2023.
Five things you need to know
While there is a raft of proposed changes, here are five we consider you should know:
- The definitions of ‘commercial property’ and ‘consumer property’ will be repealed. Secured parties will no longer be required to designate if a registration relates to commercial or consumer property. As a knock-on effect, registrations against individual grantors will have a maximum term of seven years.
- The registration process will be simpler with only six collateral classes—
- all present and after-acquired property
- all present and after-acquired property except specific items or kinds of personal property
- serial-number property
- intangible property and financial property
- accounts, and
- The requirement to identify a registration as a purchase money security interest (PMSI) will be removed. The explanatory memorandum said this change was prompted by a high amount of user error when registering a PMSI.
- The regulatory powers of the PPS Registrar will be expanded. The amendments to the PPS Act will trigger Part 5 (standard infringement notices) and Part 7 (injunctions) of the Regulatory Powers Act. This Act contains standard monitoring, investigation, and enforcement power provisions.
- The definition and all other references to ‘chattel paper’ in the PPS Act will be removed. Chattel paper has little practical application in Australian law outside of the PPS Act.
How will the proposed changes impact existing registrations?
The Australian Financial Security Authority (AFSA), the regulator of the PPS system, and PPS Registrar is assisting the Government to identify challenges related to the transition. If the proposed legislative changes are implemented, the Government has foreshadowed there will be a transitional period from the pre-amended to post-amended PPS system. It is anticipated this transition period will extend over a minimum of 24 months from the time the amendments take effect.
The consultation paper, released together with the draft legislation, states the Government is presently considering two approaches to the transition: a grandfathering model and temporary perfection. If a grandfathering approach is adopted, it is likely the current PPS Act will continue to govern security interests that pre-date the amendments. Under this approach no action by registrants would need to be taken to maintain perfection of their security interests on the PPS register; however, different laws would apply to pre-amendment and post-amendment security interests.
Alternatively, all interests may be transitioned across to the new PPS register under a temporary perfection model. While this model would require action by registrants, it ensures all security interests in personal property are governed by the same laws. It was also the approach taken when the PPS Act first came into effect. For now, we wait to see how the Government will make the transition if the draft legislation is passed.
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