10 June 2014
PPSA ReviewSecretariat
Commercial and Administrative LawBranch
Attorney-General’sDepartment
3-5 National Circuit BARTON ACT2600Byemail to
Attention:MrBruceWhittaker
DearMrWhittaker
DIFASUBMISSION:REVIEWOF THE PERSONALPROPERTIES SECURITIESACT
2009- ISSUES WITHASMALL BUSINESS FOCUS
1. Introduction
TheDebtorand InvoiceFinanceAssociationofAustraliaandNew Zealand(DIFA) appreciatestheopportunitytomake thissubmissiontotheReviewofthePersonal PropertiesSecuritiesAct (PPSA).
DIFAwasformedin1994torepresentthe majorprovidersofthe financialserviceof factoringanddiscounting,alsoknownasreceivablesfinance.TheDIFA memberlistisin AttachmentA. TotalturnoverofaccountsreceivablebyDIFAmembersisnowaround
$64billionperannum. Many DIFA membershaveanumberofsmallbusinessclients for whomreceivablesfinanceisacriticalwaytoobtaincashflowfinanceoutsidetraditional
loanfacilities.
BeingthemajorprovidersofaccountsreceivablefinanceinAustralia,DIFAmembers tookamajorinterestinthepersonalpropertysecuritieslawreformprocessduringthe leaduptocommencementofthePPSA;andwereverysupportiveofthereforms. Overall,the changeswerebeneficial to thedebtorfinance industry,buttherearesome areaswhere thePPSA itselfor the functionalityoftheRegistercould beimproved to ensurethatthe fullbenefitsofthePPSAcanberealisedacrossallbusinessandfinance sectors.
Our Members’ financing arrangements are almost invariably secured by a charge/securityinterestoversomeoralloftheirclients’assets. Theirinterestsas securedpartieswerepreviouslyprotectedby registrationon thenow defunctBillsofSale orASIC companychargesregisters;andnowbyregistrationon thePersonalProperties SecuritiesRegister. ThereforetheprovisionsofthePPSAandthesmoothoperationof the Registerare of critical importanceto DIFAmembers.
AttachmentBisaTable ofSmallBusinessIssuesandProposedSolutionswhichdraws on the experiences of DIFA Members and includes proposed solutions aimed at improvingtheefficiencyandeffectivenessofthePPSRegimeasa wholeandthe functionalityoftheRegister. Thissubmission focusesonissuesrelevanttotheimpactof thePPSAonDIFAmembersandtheirsmallbusinessclients. Broaderissueswillbe canvassed in ourgeneral submission later thisyear.
2. Our Perspective of thePPSA
a) Despiteitscomplexityofdrafting,conceptsandstructure,DIFAoverallregards thePPSAas asignificantand beneficialreform to commerciallaw,by settinga comprehensivepolicyonthenatureofsecurityinterests(includingthosebased onownership)andprovidinggreater transparency ofthose interests throughits registration process.
b) Thecorepolicy basisforthePPSAissound,buttheActshouldberefinedto achieve its full potential.
c) Inparticular,thebenefitsoffered toDIFAmembersbysection64oftheActunder whichprioritycanbeobtainedoverapriorpurchasemoneysecurity interest (PMSI)byanon-PMSIoveraccountshasbenefited theindustry,butitneeds refinement toremove some uncertainties andpractical anomalies.
d)Manyoperationalconcernswiththe PPSRegimemayarise fromtheAct’s complexity,thedesignoftheRegisterandalackawarenessoftheActbythe broader businesscommunityand manyofitsadvisors.
e) ThefunctionalityoftheRegistercouldbesubstantiallyimprovedthrough simplification oftheregistration requirements.
3. Concepts
Non-PMSIsecurityinterestsinaccounts-Section64
TheconceptsofPMSIsandnon-PMSIsecurityinterestsinaccountsarenew concepts underthePPSA. Undersection64areceivables/invoicefinanciercanobtainpriority overapriorPMSI foraninterestinan accountasproceedsofinventory,providedit complieswiththerequirementsofthissection.Someoftheserequirementsaredifficult tointerpretandsomecanbedifficulttomeetwithintherequiredtimeframes. TheTable ofSmallBusiness IssuesandProposed SolutionsdetailssomeDIFAconcernsthat may haveaparticularimpactontheprovisionofsmallbusinessfinance. Ourmoregeneral PPSA submission will expand on ourMembers’concernswith section 64.
4. The PPS Register
DIFAmembershavecommentedthattheRegisterisnoteasyformanyoftheirsmall businessclientstounderstandanduse,whichmeansthat they arenotenjoyingits full benefitsandmay beexposedtorisks,particularlyiftheyareintheshorttermhireand rental industry. A refreshedwebpagelayout, withunnecessarystepsandconcepts removed,wouldallowsmallbusinessanditsadvisorstobe moreconfidentand comfortableinregistering andmanagingtheirsecurity interests.
Section2ofthe TablesuggestssomechangestotheRegister. Someofthese may involvechangestothe Actor theRegulations,whileothersmay bepossiblevia functionalityenhancementsoradministrativechangeswithoutthe need towaitfor statutoryamendments. We wouldbe pleasedtoexplorethisfurtherwithyouorwithstaff from the Attorney-General’sDepartment or AFSA.
5. Conclusion
ThePPSAhasbroughtmanybenefitstothefinancialservicessector,includingtothe receivables/debtorfinanciers. Wesubmitthatthereshouldbesomerefinementofthe PPSAandthePPSRegistertoimprovetheeffectivenessofthePPSRegimeforall usersandtheAustralianeconomyas awhole.
Ifyouwouldliketodiscussthissubmissionpleasecontactmeon92315877orbyemailto .
Yourssincerely,
Catherine Shand
AFC Corporate Lawyer
ATTACHMENTA
DIFAMEMBERS
180Group
Bankof Queensland Bendigo Debtor Finance BibbyFinancialServices Cash ResourcesAustralia CashflowFinanceAustralia GECapital
HSBCBankAustralia
KeyFactors
NationalAustraliaBank Scottish PacificDebtor Finance St. GeorgeBank
Suncorp Working Capital Solutions
WestpacBanking Corporation
Associate Members CashflowFunding Limited LockFinanceNZ
Pacific InvoiceFinanceNZ Scottish PacificDebtor Finance NZ
Affiliate Members DLAPiperAustralia FTI Consulting GlobalXInformation HallChadwick
HermesDataSystems HPD SoftwareAsia Pacific LoweLippmann
PiperAlderman PolczynskiLawyers TracePersonnel
GregoryClayton, Barrister& Solicitor
ATTACHMENTB
PERSONALPROPERTYSECURITIESACTSTATUTORYREVIEW2014-SMALLBUSINESSISSUES
TABLEOF SMALLBUSINESSISSUES AND PROPOSED SOLUTIONS:PREPARED BY THEDEBTOR ANDINVOICEFINANCE ASSOCIATION
10June 2014
IssueIssueand Example/Case StudyProposed Solution/sSmallBusiness
1.CONCEPTS/DEFINITIONS
1.1VestingRulesThevestingrules arenotwellunderstood, particularlyastheyaresplitbetweenthePPSAand the Corporations Actanddifferbetweenthose Acts.
1. Thevestingrulesshouldnotapplyif, at the timeof insolvency, thereis any PPS registrationidentifyingthespecific equipment.
2. Thevestingrulesshouldbemoved from the Corporations ActintothePPSAso that thereisonly onesetofvestingrulesfor all grantors andsecured parties.
Small businessesare affectedbythevesting rules, particularlyin the hire andrental industry.
1.2Non PMSIsecurity interestinaccountsunder s64-general
Therearevarious concernsforDIFAMemberswith section 64.Wehavedetailed somethatmayhave a particular impactontheprovisionof financeto
small business.Ourmore general PPSAsubmission laterintheyearwillexpandonconcernswith section 64.
Amendsection 64toaddress this issue.
1.3NonPMSI security interestinaccountsunder
Thereisatechnical problemwith section 64based onthewording- a securityinterestin accounts
Amendsection 64toaddress this issue.Yes,thedelaycan adverselyaffectsmall
Issue / Issueand Example/Case Study / Proposed Solution/s / SmallBusinesss64- delays toprovision of
businessfinance / cannotberegistered untila 15businessdayperiod
has expired.Areceivablesfinancierandits customerdonotwanttodelayperfectionfor15 businessdayssofar asthePMSIholderis concerned, whilsthavingperfectionbyregistration sofaraslatersuppliersareconcerned.Thiscauses issuesforsomefinanciers anddelaysinbusinesses obtainingfinance. / businessesobtaining
finance.
1.4NonPMSI security
interestinaccountsunder s64-noticeperiod / Thenoticeperiodforsection 64notices was
originally5businessdayswhich workedwellwith the 20businessdayperiodtoperfectthesecurity interest,howeverwhen thesection64notice periodmovedout to15businessdays, the20 businessdayruleremained. This is averyshort periodtocompleteregistrations andensurethey are complaintwiththePPSAandtheRegulations. / Thesection 64noticeperiodshouldbe
reduced to10business days, orthe registrationperiod increased to 30 businessdays.
Thepreferredcourseistochangesection
64sothatthe accountregistrationcanbe madeatanytime.Thegeneral rulewill then applyandregistrationmustbe completed within20businessdays ofthe factoringor invoicediscountingagreement commencing. / This canadverselyaffect
the provisionoffinance tosmall businesses.
1.5NonPMSI security
interestinaccountsunder s64 / Section64(1)(b) isdifficulttounderstand. / TheintentionbehindSection 64(1)(b)
wouldbeimproved if thefirstlineof (b)(i)
stated“thesecured partywhich will hold”. / This canaffectsmall
businesses andtheir advisorswhen interpretingthePPSA.
1.6Enforcementof
securityinterestsinliquid asset / Section120in itscurrent formisnotworkablefor
debtor financiers. Fivebusinessdaysisinadequate togainafull understandingofthe claim; particularlywhen section 120doesnotincludeany requirement for thesecuredpartytoprovide supportingdocuments to validate theirclaim. / A judgementdebtshouldbea precursorto
usingsection 120forenforcement/ collectionofamountsdue to thegrantor. It shouldbecomparable toa garnishee order.
Theprovision byAFSAof an “approved / Yes becauseitmayaffect
the provisionoffinance tosmall business.
Issue / Issueand Example/Case Study / Proposed Solution/s / SmallBusiness
It isnotfeasible for a debtor financier to tryto
identifyamountsonoutstandinginvoiceswhich relatetoindividual suppliers makingaclaimunder section 120.
Underthecurrent provisions receiptofasection
120noticewill behighlydetrimental toagrantor’s business. If theclaimismaterial it mayresult in the withdrawalof fundingundera debtor finance facility. / form”underSection120wouldalsoassist.
2.REGISTER/REGISTRATION
2.3Register-free-text
field / Thepurposeandstatusof thefreetextfield is
unclear. Itisoftenleftblank,meaningthatfurther time consuminginvestigationsmay needtobe carriedouttodeterminewhatgoods an ‘Other Goods’ registration actuallyrelatesto.
WeunderstandthatinNewZealanditis compulsory,withmandatorydatatobeprovided. / It issuggested thattherebeeitheran
optionalorcompulsoryfieldtoallow a description inthefreetext boxof“Other Goods”.Eitherway, thereshouldtobe legal clarificationof thestatus ofthis field. / This is a small business
issuebecause simplificationof the Registerwill benefit everyone.
2.4Register-proceeds / Therelevanceof theproceeds provisionsis
unclear,given sections31and32.Perfectioncould bedeemedwithoutregistrationwithouttheneed for specificinclusioninfinancingstatement. Descriptionsof proceeds are ofdoubtfulvalueor meaning. / Omitreferences toproceeds information
fromfinancingstatements,s153,Item4(d)
s33(1)(a), andRegSch 1,2.4 / This is a small business
issuebecause simplificationof the Registerwill benefit everyone.
2.5Registerwebsite-
layout / This is notintuitiveandseems tohavebeen
writtenforpeoplewhoalreadyknowtheanswers to the questions.Thirdpartyserviceprovider feedbackisthatmanyusers arenon-compliant, / 1. Removalofthefollowingfields,
“subordinate”,“inventory”, “proceeds”
andPMSI. / This is a small business
issuebecause simplificationof the Registerwill benefit
Issue / Issueand Example/Case Study / Proposed Solution/s / SmallBusiness
duetoalack ofunderstandingof theimplications
of notregistering,or ifthey try, an inabilityto correctlyregister.
For example,duringtheregistrationprocess, informationmustbeprovided aboutpurchase moneysecurityinterests,whetherthecollateralis inventory,whethercurrentassetsaresubject to control,whethertheregistrationissubordinateto another andwhetherproceeds aretobeclaimed.
Theterm“GONI”(Givingofnoticeidentifier)is
confusing.
Manynon-financial businessesdonotunderstand what isrequired andneedto engageathirdparty specialisttoadvisethemhowtocorrectlyregister securityinterests. / 2. Replacingthe“control”fieldwith fields
called "controloverinventory"and "controloverproperty(otherthan inventory)". Thiswouldstoppeople registering"inventory - yes"and"control- no",whicharguablyhasnomeaningor purposeunderPPSA.
3. Explainingtheconceptsof“inventory” and “control”andthe consequencesof gettingitwrong for layusers.
4. Explainingtheterm“GONI” (GivingOf NoticeIdentifier)orreplacingitwith a moreintuitiveanduser friendlyterm.
5. Explainingbetterwhat informationis requiredandwhatis“voluntary;andthe consequencesofomittingit orgettingit wrong. / everyone.
2.6Register-clutter / It isnotedthattheissueofexpiryof security
interestswasdiscussedduringtheconsultation stages prior tothecommencementof thePPSA andthedecisionwasmadetoincludethe "indefinite"enddate(whichcarries ahigh
registrationcostsasaconsequence).Howeverthe
registercontainsmanydefunctregistrations, includingalargenumberofmigrated registrations. Otherthanforeserialnumbered goods,thereisno obligationtoremovethese.
Clutteringof thePPSRwithremovalof expired registrations slowsdown searchingandfinancing / ThePPSAshouldbeamended to require
that all expiredPPSRregistrations be removed. / This is a small business
issuebecause simplificationof the Registerwill benefit everyone. Inparticular, removal ofexpired registrations willassist small businessby speedingupfinancingas their willbefewer registrations against themrequiring investigationor removal.
Issue / Issueand Example/Case Study / Proposed Solution/s / SmallBusiness
andincreasesthecostsof investigatingand
removingoldregistrations. / Itwill alsobeeasierand
clearerforsmall businesseswhosearch the PPSR.
2.7Register-incorrectly registeringasAPAP / Somesecured partiesregister all interestsas
APAPs,whentheyholdonlyasecurityinterestina
specificassetorclassof assets.This adds complexityanddelaystofinancingarrangements becausereleasesandpriorityagreementsmaybe required. / ThePPSA couldbeamended toprohibit
secured partiesfrom‘overstating’ the
nature oftheirsecurityinterest;and insteadtoonlyregisterconsistently with the underlyingsecurityagreement.
This wouldassistbusinesses by:
1. Reducingthelikelihoodof searchers beingmisledabouttheextent to which a small (or large)businesshas securedits assets;and
2. Speedingupfinancingastherewillbe clearerandfewerregistrations against businesses requiringinvestigationor removal. / This is a small business issuebecause
simplificationof the Registerwill benefit everyone.
2.8Register-change of
collateralclass / Theregisterdoesnothavethe functionalityto
allowsecuredparties toamend/change registrations tonarrowercollateralclasseswithout jeopardisingtheirpriorityrankingbyhavingto "re- register"and"de-register"inrespectofcollateral that continuestobeperfectedbythe registration afterthechange.
For examplea securitymaychangefrom:
ALLPAPtoALLPAPExcept;or
ALLPAPtoMotorvehicle / Enhancethefunctionality of theRegister to
allowaregistrationtobenarrowed, for example from:
ALLPAPtoALLPAPExcept;or
ALLPAPto Motorvehicle
butnotwidened for example from:
ALLPAPExcept toALLPAP;or
MotorvehicletoALLPAP
becausethiswouldprejudicetheposition ofothersecuredparties. / This is a small business
issuebecause simplificationof the Registerwill benefit everyone.
Issue / Issueand Example/Case Study / Proposed Solution/s / SmallBusiness
This resultsin delays andrisksfor secured parties
anddelaysandexpenseforgrantors.
2.9Registeringas“APAP
exceptanything over whichthesecuredparty doesnothavea security interest” / This slowsthings down becauseanincoming
financierhas toobtaindetail from thegrantoror the secured partyaboutwhatcollateralis actually has aninterestin. / ThePPSA couldbeamended to confirm
that thiskindofregistrationisnotvalid; and/ortorequireclearer registrations than this. / This is a small business
issuebecause simplificationof the Registerwill benefit everyone.
2.10 Ineffective
registration- seriously misleadingdefect / Unders164aregistrationwillbeineffective
becauseof adefectintheregister ifthereis a seriouslymisleadingdefectin data relatingto the registration(otherthanadefectofakind prescribed bytheregulations).
Someof theregisterissuessetoutabovesuchas incorrectcompletion of the“PMSI”,“subordinate”, “inventory”, “proceeds”or“control”fields cangive rise toachallengeto a registrationonthe basis
that ithasa“seriously misleadingdefect”.This can beused byan insolvencypractitionerrepresenting onesecurityholderinan attempttoinvalidate another financier’spriorityor toinvalidate registration of asub-lease byahireor rental business orbyabusinessthatprovidesgoods
underretentionof titlearrangements. / Clarifywhatis aseriouslymisleadingdefect
indata relatingtotheregistration. / This is a small business
issuebecausetheymay havetheir registrations challenged and even invalidated.
2.11 BusinessDay
Calendar / ThePPSAintroduced a“businessday”concept.It
canbecomplicatedtocalculatebusinessday periods forvariousnotices. Anerror inestimating the numberofbusinessdayscaneven befatal to someactionssuchasaregistrationof aPMSIor complyingwith Section64. / A PPSR businessdaycalendar shouldbe
containedwithinthePPSRtoavoiderrors incalculationof business days. / This is a small business
issuebecausetheymay bemorelikelyto misunderstandthe importanceoftaking someactionswithina specified numberof businessdays.
Issue / Issueand Example/Case Study / Proposed Solution/s / SmallBusiness
3.MISCELLANEOUS
3.1EducationaboutPPSA
- lack of awarenessin smallbusinessseems apparent / This wasageneralconcern, even duringthe
consultativedevelopmentof thePPSA.Senators in hearings expressed concern, with expectations the Governmentwouldpromoteawareness, especially tosmall business. Theseconcerns remain, as evidenced byfinanciers’experienceand by the Termsof Referencefor thereviewof thePPSA
afterithas been in operationformorethantwo years. / Government awarenesscampaigns direct
tosmall business andtheiradvisors, includingsmall businessagencies,lawyers andaccountants. / This is amajor issuefor
small businessoperators whomaynotbeawareof the risksandbenefitsof the PPSAfor their businesses
3.2Simplify thelayoutof
thePPSA / Thelayoutofthe Actiscomplex,alittleconfusing
anddifficult tonavigate(whichmeanshavingto jumparoundtofindprovisions thatarerelevantto a given situation). Theinteractionwiththe CorporationsActcanalsobehardtounderstand. / Thefollowingsolutions areproposed:
Part2.4Division2-Proceeds andtransfer becombinedwithPart2.7- Transferof interestsin collateral and Part 206 - Division4 (ss66-68)
Section32(1),(2),(3),(4)and(5)would morelogicallybelongaftersections 45and
46. / This is a small business
issue. AsimplifiedAct wouldmakeiteasierfor small businessesand their advisorsto understandthe implication of thePPSA, therebyreducingtheir exposuretoPPSArisks andassistingtokeep costs contained.
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