Government's Response to the PPSR Review

Bruce Whittaker completed his formal review of the PPSR in March 2015 and his report, containing 394 recommendations, was put to Parliament at that time.  I first wrote to the Attorney Generals' Department in September 2016 asking what progress had been made in assessing the review's recommendations and have begun making something of an annual habit of it ever since.

The request for information and the formal response from the AGD after 18 months consideration can be found HERE, and the response after 30 months can be found HERE.  Some 44 months on from the PPSR Review's release I've received the following response to my latest enquiry requesting an update on the progress of its consideration:

Thank you for your email about the Government’s response to the Review of the Personal Property Securities Act. I am sorry for the delay in responding to you.

Regarding timelines, while the department has made considerable progress on the response to the Review, we are currently consulting with a range of industries and stakeholders regarding a number of the more complex recommendations in the Review.  Following the conclusion of this consultation, the Government intends to release its response to the Review. This is to provide stakeholders with notice of the Government’s position on the review as soon as possible. Following this, the department will undertake broader consultation on the corresponding exposure draft legislation. We are not in a position to provide a release date at this time, but will keep you updated.

With all due respect to the AGD, this doesn't represent any advance on their update last year in which they advised:

The Government intends to release an Exposure Draft of a Bill to amend the Act and a prototype PPS Register, for public consultation. Stakeholders will have an opportunity to provide comment on the Bill and the Register before the Government takes further action to implement the recommendations of the Review.

The Government will make further announcements about the timing of public consultation on the Bill and Register.

If anything, the latest response seems to represent something of a step backwards.

At this stage, it might be worth pointing out that it 'only' took around 2 years from the passing of the 2009 Act to commencement of the Register in the first place (not that anyone considered that to be particularly quick) and we are now approaching 4 years from the presentation of the Review's findings without the Government having even released a response for consultation let alone an implementation strategy.

With so many finding the registration of their security interests on the PPSR an overly complicated exercise fraught with the possibility of error, it is disappointing that there is such delay in implementing recommendations designed to simplify the process and remove many of the Act's pitfalls.

Progress of the PPSR Review Report - UPDATE

I wrote to the Attorney-General's Department (AGD) in September 2016 asking what progress had been made during the 18 months following the tabling in Parliament of Bruce Whittaker's final report of the Review of the Personal Property Securities Act.  

My request for information and the AGD's response were the subject of a post of mine at the time - see here.

A year later, with no action evident from the AGD, I thought I'd try again.  As before, I reproduce below my request and the AGD's subsequent response.

My request (27/09/2017):

It's been 30 mths since Bruce Whittaker's Report of the Review of the Personal Property Securities Act was tabled in Parliament.

What progress has been made since that time in moving to implement its recommendations, both legislatively and operationally? 

 I'd also appreciate an indication as to the timetable for implementation. 

I am sure that the Gov’t is keen to ensure that all parties are given due consideration and that reform must be executed with care and diligence. I also appreciate that the response to the review must be progressed as a comprehensive package rather than on an ad hoc basis in order to achieve its aims to reduce complexity and burden without prejudicing the interests of any party.

However, 30 mths have now passed with only one of the Review’s 394 recommendations having any reflection in subsequent legislation.  Surely, by now, an efficient Gov’t administration will be in a position to provide information on implementation timeframes and intentions.

The AGD's response (31/10/2017):

Thank you for your email of 27 September 2017 regarding implementation of the Review of the Personal Property Securities Act 2009 (the Review).

Since the Review was tabled in Parliament on 18 March 2015, the Government has prioritised development and passage of the Personal Property Securities (PPS Leases) Act 2017 (the PPS Leases Act). The PPS Leases Act has reduced the regulatory burden imposed by the Personal Property Securities Act 2009 Act (the Act) on the hire and rental industry by increasing the term of a PPS lease from at least one year to at least two years, providing that an indefinite lease is not a PPS lease unless and until it has been in force for two years, and making other amendments.

The Government has given close consideration to the 394 recommendations made by the Review and conducted targeted consultations with stakeholders. The Government intends to release an Exposure Draft of a Bill to amend the Act and a prototype PPS Register, for public consultation. Stakeholders will have an opportunity to provide comment on the Bill and the Register before the Government takes further action to implement the recommendations of the Review.

The Government will make further announcements about the timing of public consultation on the Bill and Register.

I hope this information is of assistance.

Taking the AGD's response at face value, a new PPSR seems to be on the cards rather than merely some tweaks to the existing register!

By way of recap, some of the changes recommended in the review included removing the need to designate security interests as PMSIs or as the supply of items for inventory, as well as taking away the requirement to identify grantors that are trustees of trusts by their trust's ABN.

I'll probably write again next year to the AGD with a follow-up enquiry regarding progress on this matter, but, in the meantime, I'd be grateful if any stakeholders that have been on the receiving end of 'targeted consultations' could get in touch with me and, perhaps, shed some light on the manner in which the AGD's thinking has been progressed.

Progress of the PPSR Review Report

It's been around 18 months since Bruce Whittaker's final report of the Review of the Personal Property Securities Act was tabled in parliament.  The report made a little under 400 recommendations concerning ways in which the PPSR could be improved - many of which involved substantial simplifications to the registration process.

So, in the absence of any update as to progress in following up the report's recommendations I decided to write to the Attorney General's Department to ask how things were progressing.  In truth, I had almost forgotten I'd done so, but, this afternoon, I received a reply.

I reproduce the body of the reply, in full, below (drafting errors included), but first I'll show you my original request, and leave it to you to judge to what extent the response addresses the request.

My request:

It's been about 18 months since Bruce Whittaker's Final Report of the Review of the Personal Property Securities Act was tabled in Parliament.   

I'd like to know what progress has been made since that time in moving to implement its recommendations, both legislatively and operationally.  I'd also appreciate an indication as to the timetable for implementation.

The AGD's response:

Dear Mr Miller,
  

Thank you for your enquiry regarding the progress of the independent statutory review (the Review) of the Personal Property Securities Act 2009 (the Act). The Review makes 394 recommendations aimed at reducing complexity and improving the accessibility of both the Act and the Personal Property Securities Register and includes number of recommendations which would reduce the regulatory burden on the equipment hire industry.
  

The Government is working towards implementation of these reforms while ensuring that the rights and interests of all parties are given due consideration. Reform to the Act will have an economy-wide impact and must be executed with due care and diligence. The Act carefully balances the rights of secured parties, lessors and financiers on the one hand, against those of grantors, lessees and borrowers on the other. The response to the Review must be progressed as a comprehensive package rather than in an ad hoc fashion, if it is to achieve the aim of reductions in complexity and regulatory burden without prejudicing the interests of any party.
  

The Attorney-General’s Department hopes to be in a position to provide information about implementation time frames in the near future.

 Thank you again for your enquiry.

Simplifying the Registration Process - Review Recommendations

When the results of the official Review of the PPSA were released earlier this year, I was tempted to hurriedly put out a number of posts describing its recommendations.  However, this temptation was tempered somewhat by the realisation that, not only was it something of a major job trying to sort through 394 recommendations in a 542 page report, it was highly unlikely that any of the report’s recommendations were likely to be implemented in the very near future.  

This was not from of any lack of confidence in the quality of the recommendations but merely because of the sheer number of recommendations being made and the fact that it took well over a year for the last PPSR amendment Bill to be passed addressing only a single issue (not counting the time taken to decide that a Bill was appropriate in the first place!).

Now that I’ve stuck my toe in the water of the Report’s recommendations in my last, catchily titled, post on the Cross-Collateralisationof PMSIs, I thought I’d draw attention to some of the Report’s recommendations aimed at simplifying the registration experience.

 Consumer property or commercial property?  - Recommendations 86 and 87 propose doing away with the distinction entirely.  No more confusion caused by the uninitiated thinking that ‘commercial property’ means the same thing as commercial premises.

Purchase Money Security Interest (PMSI) applies? - The PPSR’s ‘PMSI Box’ is widely misunderstood with many registrations rendered largely ineffective because a secured party didn’t understand what was meant by a Purchase Money Security Interest.  In both Canada & NZ there is no requirement to ‘flag’ a registration as a PMSI but, instead, PMSI priority will be determined by the nature of the security interest itself whenever competing security interests need to be assessed.  Where ROT suppliers are concerned, recommendation 241 proposing the removal of the PMSI Box is one of the biggest (if not the biggest) recommendations contained in the report.

The collateral is inventory? -  Recommendation 88 proposes doing away with the question, finding that it added little value and merely served to create confusion and uncertainty – as well as an opportunity for liquidators to dismiss an otherwise correct registration.

Current assets are subject to control? – On of the least understood of the questions facing anyone trying to lodge a registration against inventory, the Report’s recommendation 89 also proposes removing this question, again finding that it added little value and that it’s absence would be less confusing.

This registration is subordinate to another? – Again, this is found to be merely confusing and absent of value, thus recommendation 90 advocates its deletion.

Proceeds to be claimed? – Recommendation 180 seeks to make it clear that if a security interest over goods supplied is properly perfected by registration then it should automatically apply to any proceeds from those goods, thus recommendation 98 proposes the removal of the proceeds question when lodging a registration.

Giving of Notice Identifier (GONI) – Recommendation 122 suggests doing away with the expression “GONI” on the register and replacing it with a term that more clearly indicates its purpose as the supplier’s internal client reference number.  GONI was always a ridiculous and misleading term for something that was otherwise so straightforward.

In conclusion, should the Report’s recommendations be adopted, lodging a registration in the future will be simply a matter of identifying the grantor/buyer, choosing a collateral class, entering a brief (but suitably vague) description, choosing a registration period and pressing submit. Too easy!!

But, as I said at the outset, don’t expect much to happen in the short term.

Cross-Collateralisation of PMSIs

One of the more easily missed of the PPSA Review Report recommendations compiled by Bruce Whittaker concerns the ‘cross-collateralisation of PMSIs’.

For trade credit suppliers still coming to terms with the concept of PMSIs, the idea that these can be cross-collateralised might be a step too far too soon.  However, rather than simply causing eyes to glaze over this could well be very good news for trade credit suppliers who simply want to make their Retention of Title (ROT) clauses as effective as possible.

In order to put the recommendation in its proper context we’ll need to briefly revisit the ROT in a pre-PPSA environment.

At its simplest the ROT will be a provision in a supplier’s terms of trade that states that their buyer won’t get title to the goods being supplied until those goods have been fully paid for.

Over time the ‘simple’ ROT was gradually enhanced to allow for on-sale and for on-sale receipts to be ring-fenced for the suppliers benefit; to allow the supplier rights to enter the buyer’s premises to recover goods etc; and, eventually, to provide that, not only would title remain with the supplier until those goods were paid for but also that title would remain with the supplier until all monies owed by the buyer to the supplier had been paid regardless of how those outstandings had arisen.  Thus was born the All Monies Clause.

The All Monies Clause would allow a supplier, with outstanding debt, to recover their product from an insolvent buyer regardless as to whether that specific product had been paid for or not.

Fast forward to the introduction of the PPSA and its priority rules. The PPSA determined that priority of competing security interests should be decided by the date that security interest was registered on the PPSR – the earlier the registration the higher the priority. The exception to this was the creation of the Purchase Money Security Interest (PMSI) which, effectively, created a super priority in cases where the collateral being used as security was securing its own purchase price. In other words, an ROT arrangement would be given a super priority over other competing security interests regardless as to how much earlier those other interests might have been registered.

However, although a ‘simple’ ROT clause would meet the criteria for PMSI treatment, what about the All Monies clause?  Under the All Monies clause the goods delivered by the supplier were not just being used as security for their own purchase price they were also being used as security for any other outstanding debt the buyer owed to the supplier!  So while a security interest could be registered for the All Monies clause it would not merit the PPSA’s PMSI/super priority status and would have to ‘fight it out’ with competing security interests held by other creditors, many of whom may well have registered earlier.

The situation is further complicated where the supplier’s product is such that paid-for goods delivered last month might be completely indistinguishable from unpaid-for goods delivered last week – while the security over the unpaid-for goods has super priority, the All Monies interest over the paid-for goods does not. Do the few remaining goods on the buyer’s warehouse floor represent goods that had been paid for or goods that had not?  Unless the supplier is able to demonstrate that those specific goods had not been paid for they are likely to lose their super priority claim over them.

This is the scenario that the Review Report’s recommendation addresses – why should an unpaid supplier fail in their bid to exercise their properly registered and perfected security interest simply because paid-for goods and unpaid-for goods are indistinguishable?  This is the concept behind the ‘cross-collateralisation of PMSIs’ and although it isn’t intended to apply where there are no problems in distinguishing paid-for goods from unpaid-for goods it will make a big difference to suppliers of a more homogenous product or where serial numbers do not appear in invoices/delivery notes etc.

While there is no indication of any timetable for even discussing Bruce Whittaker's report recommendations let alone implementing them, delving into his proposals is an excellent way of getting a better understanding of the current operation/interpretation of the PPSA.

PPSA – The Americans don’t like it!

Many will have heard by now of the action being taken by KordaMentha, as receivers of Forge Group, against the US Company, APR Energy. 

The Forge Group had been leasing two power generators worth $50 million from APR Energy on a long-term basis.  Once Forge went into administration, this lease was deemed to be a security interest under the PPSA and, because it had not been registered on the PPSR, considered vested in Forge for the administrators to do with as they will.  APR is, understandably, not best pleased with this prospect and the argument is going to be heard in court.

However, my interest in this article is not so much with the ins and outs of the legal case so much as it is with the extent to which US interests, supportive of APR’s position, have been so prominent in the submissions given to Bruce Whittaker’s statutory review of the PPS Act.  The following are a few choice extracts from some of the contributions:

APR is currently being caused severe economic hardship as a result of an illegal seizure of its property by a major Australian financial institution and the liquidators for an Australian power generation company. …

At the heart of the dispute is a most unfortunate claim under color of the PPS Act by Forge and ANZ Bank to possess and take title to APR’s Gas Turbines, valued at US$64 million, without due process of law and without compensation of any kind to APR…

Forge’s largest creditor, ANZ Bank, through its appointed managers and receivers, is seeking to illegally convert APR’s Gas Turbines as payment for a substantial debt owed by Forge to ANZ Bank. 

Former member of the US Congress, Lincoln Diaz-Balart.

I have recently learned about your review of the Personal Property Security Act (PPSA) and would like to urge you to take into consideration the devastating effects of Section 13 of the PPSA for American companies doing business in Australia.

As you know, Section 13 allows certain entities to make false claims against property that is owned by American companies and being leased to Australian individuals and businesses. Under this law, American companies can loose hundreds of thousands of dollars in equipment to the Australian government in the event of bankruptcy. This is extremely troubling and Section 13 should be modified to prevent this.

The City of South Houston Chamber of Commerce. (Note: Section 13 of the Act provides a definition of what constitutes a PPS Lease).

We are consistently looking to expand into new markets where there is stability and opportunity.

I am, therefore, concerned about what I have learned about Australia's recent Personal Property Securities Act 2009 (PPS Act). As I understand it, Australia's PPS Act is being used by unscrupulous entities to illegally seize American-owned property and hold it for ransom. Failure by the owner to record its ownership interest can lead to the loss of everything from

vehicles and plant machinery to shares, intellectual property and contractual rights. 

For small businesses like mine, the loss of even one machine under such a scenario could be catastrophic. You tack on subsequent legal fees and companies like mine can find themselves in a hole from which they cannot remove themselves. In short, the PPS Act has turned the idea of doing business in Australia from an appealing to a dangerous gamble.

Barbara Woerner, Vice President of James Woerner Inc, New York.

Section 13 of the PPS Act will allow unscrupulous entities to register bogus security interests in leased property owned by companies doing business with BD Global. Treatment of lease agreements as security interests under the PPS Act allows Australian companies to improperly list leased property as security for a commercial loan. If the loan is in default, the lessor, which is often an American company has lost all rights to the property.

Blaine D. Hone, CEO of BD Global, Utah.

The PPSA has created an opportunity for dishonest entities in Australia to seize American-owned property and hold it hostage. By registering bogus "security interests" in property that is owned by American companies and leased in Australia, these entities are attempting to secure the property and quash the ownership rights of American companies. This has created a very dangerous and unstable situation for local companies that export valuable equipment to Australia pursuant to short-term lease agreements.

Thaddeus M Jones, Illinois House of Representatives, 29^th District.

Needless to say, these submissions all include a reminder of the important contribution US companies make to Australia and the extent to which that will be jeopardised without some special treatment being extended to US/foreign companies under the PPSA.

The full text of these submissions can be found at the following link: http://www.ag.gov.au/Consultations/Pages/StatutoryreviewofthePersonalPropertySecuritiesAct2009-SecondRound.aspx

While it would be easy to be snide about the characterisation of what is happening in the APR Energy case as ‘dishonest’, ‘bogus, ‘improper’, ‘illegally seize’, ‘hold for ransom’ etc, and to be cynical about what could be interpreted as veiled threats, there is, nonetheless, the very real issue that the Australian Government introduced the PPSA and then kept (relatively) quiet about its implications. 

Where were the press, TV, and radio advertisements announcing that if you didn’t register your credit sale or lease of goods you ran the risk of losing your property?  Where were the massive billboards saying ‘register it or lose it’?