Senate Committee Recommends Delay And Simplification Of Personal Property Securities (PPS)

As mentioned in our January 2009 Update, the Senate Committee on Legal and Constitutional Affairs (Committee) conducted an Inquiry into the Exposure Draft of the Personal Property Securities Bill 2008 (Bill). DLA Phillips Fox appeared before the Committee to put forward those matters identified in our review of the Bill which we felt required further consideration. On 19 March 2009, the Committee released its report.

Committee recommends delay of 12 months or more

The Committee acknowledged that the Bill contains significant and complex legal changes which require a greater degree of input from both industry and the legal profession before they can be embraced by the commercial community. As a result, the Committee suggested that the introduction of the Bill be delayed at least until May 2011. This should enable the recommendations of the Committee to be implemented and further advice from stakeholders to be taken into account.

Bill to be simplified

In recognition of the amount of work that has gone into the Bill to date, the Committee was of the view that the current Bill could form the basis of effective Personal Property Securities (PPS) reform legislation. However, the Committee also found that the Bill requires substantial redrafting, clarification and simplification before it is presented to Parliament. Submissions received by the Committee from the legal community asserted that the substantial amount of detail in the Bill had adversely affected its comprehensibility. It appears this view was accepted by the Committee.
Accordingly the Committee has strongly recommended that the Attorney-General's Department reconsider the balance between certainty of the law and accessibility with a view to:

• simplifying the language of the Bill.

• simplifying the structure of the Bill.

• simplifying the terms used.

• using overseas provisions as often as possible to allow overseas experience to provide guidance for the Australian model.

Ongoing review

In further recognition of the complex legal changes contemplated by the Bill, the Committee has recommended that the Bill be reviewed three years after it commences in a process that includes extensive consultation with industry, government, lawyers, consumers and academics.

Other key recommendations

Retention of obligation to act in a 'commercially reasonable manner'

Other key recommendations of the Bill include the retention of the obligation of parties to 'exercise and discharge their rights, duties and obligations honestly and in a commercially reasonable manner'. The express legal requirement to act in a commercially reasonable manner has raised particular concerns from the private sector, as it would appear to impose on parties to security arrangements a standard of conduct which opens the way for substantial dispute. Given the changes to Australian consumer laws that are being proposed by the Federal Government, it is unclear why this requirement continues to be recommended.

Interestingly, the Liberal member of the Committee recommended this obligation be removed from the Bill.

Impact on lessors

The potential adverse impact of the Bill on lessors was accepted by the Committee, which recommended that consideration be given to improving the priority of unperfected lessors as against unsecured or other unperfected interests in goods. Despite this, there is no suggestion that lessors be excluded from the requirement to 'perfect' their security, and in particular to have their lease registered on the national PPS system. The Committee was of the view that such requirement has not caused any difficulties in other jurisdictions which have adopted the PPS system.

Other recommendations

Other recommendations put forward by the Committee include:

• The inclusion of key privacy protections for individuals (including a prohibition on making the address details of any individual public).

• The undertaking of a Privacy Impact Assessment independent from the Government.

• The enhancement of the explanatory memorandum to be released with the Bill, and an education campaign in relation to the Bill for the purposes of highlighting various controversial matters arising from it. These matters include the suggested retention of the requirement that parties act in a 'commercial and reasonable manner', and also the impact of the Bill on intellectual property.

Conclusion

Overall, it would appear from the Senate Committee's report that the introduction of a PPS system in Australia will be delayed further and, when it is introduced, the system will be simpler and more comprehensible than that proposed in the Bill. On this basis, the Senate Report is a positive development for the commercial community. Its recommendations (if adopted) should result in a system which is more comprehensible, easier to implement and involve lower compliance costs.

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