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.

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.