AustralianFinance Conference Level8, 39 MartinPlace,Sydney,2000.GPOBox1595,Sydney2001
ABN13 000493907Telephone:(02)9231-5877Facsimile:(02)9232-5647e-mail:
22 December 2014
PPSA ReviewSecretariat
Commercial andAdministrativeLawBranch
Attorney-General’sDepartment
3-5National Circuit BARTON ACT2600Byemailto
Attention: Mr Bruce Whittaker
Dear Mr Whittaker,
REVIEW OF THE PERSONAL PROPERTIES SECURITIES ACT - RESPONSE TO CONSULTATION PAPER 4
We attach the response of the Australian Finance Conference, the Australian Equipment Lessors Association and the Australian Fleet Lessors Association to Consultation Paper 4.
If you would like to discuss our response, please contact me or Catherine Shand on (02)92315877 or by email to .
Kind Regards,
Yours truly,
Ron Hardaker
Executive Director
1
AUSTRALIAN FINANCE CONFERENCE, AUSTRALIAN EQUIPMENT LESSORS ASSOCIATION AND AUSTRALIAN FLEET LESSORS ASSOCIATION
RESPONSE TO PERSONAL PROPERTY SECURITIES ACT CONSULTATION PAPER 4
22 December 2014
Review of the Personal Property Securities Act 2009
Consultation Response Template
Consultation Paper 4
Instructions:
Please use the form below to provide feedback with respect to the proposed recommendations and issues listed in each section of the form. Please refer and respond to the proposed recommendation or issue as set out in Consultation Paper 4. The heading and paragraph number of the relevant sections of the consultation paper are included to help guide you.
Please note your agreement or disagreement with the proposed recommendation by deleting either ‘Yes’ or ‘No’ where indicated. Comments can be provided in the box below each proposition. There is no word limit for comments but succinct responses clearly setting out the reasons for agreement or disagreement with the proposed recommendation will be of most use for the purposes of the review.
You may respond to as many or as few propositions as you wish.
Name: Ron HardakerOrganisation:Australian Finance Conference
Australian Equipment Lessors Association
Australian Fleet Lessors Association
Background/Expertise/Interest in PPSA Review: Finance Industry Association
Contact Details: 02 9231 5877
2.2.2 How the terms affect the registration of a financing statement
Proposed recommendation 4.1: That the Act be amended as described in Section 2.2.2.Do you agree with the proposed recommendation? / Yes, taking into account the following comments
Comments:
One member has commented as follows:
We agree that the registration should not need to indicate whether the collateral is consumer property or commercial property. However, we think that:
(a)it is unnecessary for registrations against individuals to have a maximum term of seven years on the basis that the amendment demand process already provides sufficient protection and the NZ and Canadian PPSAs do not include an equivalent restriction; and
(b)the prohibition on identifying the grantor in a registration against an individual in respect of serial numbered collateral is also unnecessary, given the restrictions on searching the PPSA and the fact that registrations against non-serial numbered collateral will in any case identify the grantor.
However, if the requirements in relation to individuals cannot be repealed, then we agree with the recommendation.
Another member commented: We agree that simplification along the lines of the Reviewer’s recommendation would assist, for the reasons set out in the Reviewer’s comments. As a commercial financier of “small ticket” including those with individuals as borrowers (as well as “large ticket” transactions with borrowers needing larger funding requirements), there is little to no value in being able to search against an individual grantor as part of the credit assessment process.
2.2.3 Other uses of the terms "consumer property" and "commercial property"
Proposed recommendation 4.2: That the definitions of "consumer property" and "commercial property" in s 10 of the Act be deleted.Do you agree with the proposed recommendation? / Yes
Comments:
2.3 The "inventory" question
Proposed recommendation 4.3: That item 1 of the table in item 4.1 of Schedule 1 to the Regulations be deleted.Do you agree with the proposed recommendation? / Yes
Comments: We agree with the proposal to delete Item 1 of the Table in Item 4.1 of Schedule 1 to the Regulations. The “inventory” field is only meaningful if, when “ticked”, the “control” field is also “ticked”. So if both the “inventory” and “control” fields are retained, then it would be preferable if the inventory field could only be ticked if the control field is ticked. However there seems little point in distinguishing between “control of inventory” and “control of other property”. It would therefore be preferable for the recommendation in the Consultation Paper to be adopted so there is only a “control”test.
2.4 The "control" question
Proposed recommendation 4.4: That item 2 of the table in item 4.1 of Schedule 1 to the Regulations be deleted.Do you agree with the proposed recommendation? / Yes
Comments: Yes, for the reasons given in the Consultation Paper. Also see our response to the previous question.
2.5 The "subordinate" question
Proposed recommendation 4.5: That item 6 of the table in s 153(1) be deleted.Do you agree with the proposed recommendation? / Yes
Comments: Yes, for the reasons given in the Consultation Paper.
2.6 The collateral classes
Should a new collateral class be added to the Register, of "all present and after-acquired property relating to"?Comments: If this amendment is made, the rules around this category would need to be clear, for example how a secured party should describe a building site, a shopping centre or an agricultural undertaking; or the assets of a particular trust where one trustee is the legal owner of the property of a number of trusts.
Perhaps for the categories of both “all present and after acquired property except” and “all present and after acquired property relating to” it should be necessary to attach a copy of the security agreement (or at least an extract which identifies the collateral) to avoid a searcher needing to make further enquiries of the grantor or other secured party or going through the process in section 275 of the Act to obtain further information.
One member has commented as follows: “We donot think this adds anything substantial, because “AllPAAP Except” can be used for exactly the same purpose. E.g, the following two are functionally equivalent:
- AllPAAP Relating To “the premises at 1 Example St, Sydney”.
- AllPAAP Except “property not located at the premises at 1 Example St, Sydney”.
This collateral class could be modified to be, eg, “AllPAAP (Limited)”, then leave the further description/limitation wording up to the secured party. In any case, none of this assists a searcher who only obtains “top level” search results, and then will have to obtain a copy of the registration certificate to see what is in the free text field. “
2.6 The collateral classes
Do you agree that the collateral classes should be changed as suggested in Section 2.6.5? Do you have any alternative suggestions?Comments: We agree with reducing the number of collateral classes and making the distinctions between them more intuitive.
One member has commented: “Having onlyone serial-numbered property collateral class, still requires sub-fields to cater for the different possible serial numbers of motor vehicles, watercraft, etc. Still, it might simplify the “top level”. See comments on AllPAAP Relating To, above. In addition, … the sub-class “Agriculture” should be renamed more clearly (eg) “Crops or Livestock”, because “Agriculture” is commonly and incorrectly taken to refer to any agricultural property.”
2.6 The collateral classes
Do you have any practical experience of working with the Canadian and New Zealand systems for identifying collateral in a registration?Comments: One member has provided the following response: My experience with the British Columbian model was that the collateral was a free text field only. There were no collateral classes or boxes to check. The secured party (or law firm acting for them) had to ensure the free text description accurately described the collateral (not too much, and not too little). A pretty standard approach developed for most kinds of securities. Over time, it works its way out and was fine. I prefer the BC model to the AU model. The BC model allowed a lot more specificity in the descriptions. A big downside with the AU model is that the PPSA itself does not make any mention of the free text field.
Another member replied as follows: I have experience working with the PPSA in New Zealand and Australia. While I do not think there is any need to amend the collateral classes in Australia so they match the NZ collateral classes, I do believe that there is a need to clarify the legal effect of the free text field and also to change the Act so that it is compulsory to include a description in the free text box.
Without the requirement to include a free text description, the register is not functioning to its full potential as a notice board of security interests as it would be very rare that a search of the Australian PPSR against a grantor would give a searcher an accurate understanding about what security interests have been registered against a particular grantor and what collateral such security interests relate to. This is due to the overuse of the “ALLPAAP with exceptions” collateral class to perfect security interests that are really only in respect of specific items and the fact that a secured party may register against the “Other Goods” collateral class but not include a description of the goods in the free text box, meaning that a searcher has no idea what type of goods the security interest or goods may relate to.
If I contrast this to my experience in NZ, the majority of the time a search against a grantor would give the searcher an accurate understanding of what security interests had been registered and what collateral such security interests relate to. In my view, this is due to the compulsory requirement in NZ to include a description in the free text box.
From my experience, the requirement to have a compulsory description in the free text box did not result in secured parties including overly cumbersome or circular descriptions in the free text box either. While this change would mean additional work for secured parties initially while they draft standard collateral descriptions to be included in the free text box, going forward it would arguably simplify the registration process while making the register much more user friendly for searchers and mean that searchers would be able to accurately identify security interests registered against a particular grantor - which would cut down the time that would need to be spent by financiers, purchasers etc when carrying out DD, doing their underwrite etc.
2.7.2 The legal effect of the free text field
Should the Act be amended to clarify the legal effect of the free text field?Comments: Yes. We agree that this should be clarified.
We have received the following comments from two Members:
The free text field ought to be retained (ie, as optional, except for “AllPAAP Except” or the proposed “AllPAAP (Limited)”). It would be preferable for the PPSA include a provision that clarifies that, to the extent that the free text identifies collateral (or excludes collateral), then the legal effect is to include (or exclude) that collateral (assuming that the collateral is otherwise within the selected collateral class).
We agree that legal effect of the free text field should be clarified, particularly by requiring it to contain some text sufficient to allow a searcher or person proposing to take an interest in another’s personal property to have some starting point of enquiry, besides the identity of a secured party.
That is, for example, a blank ‘Other Goods’ registration without any description of the collateral does not assist that searcher and in the instance of insolvency/administration, does not assist the liquidator/administrator beyond making initial enquiries with a secured party.
We also note that the Federal Court in the 2012 judgment of Hastie Group (No. 3) found that the administrator was allowed to dispose of equipment in respect of which no registration existed properly identified such equipment. We also note the comments made in CP4 with respect to s 151(1).
2.7.3 Should the free text field be compulsory?
Proposed recommendation 4.8: That the Act not be amended to oblige a registrant to include details of collateral in the free text field as a condition to making it an effective registration.Do you agree with the proposed recommendation? / Yes
Comments: Based on our comments above for Section 2.7.2, we support this proposed recommendation. However, encouragement by AFSA to provide further detail in the free text field, where appropriate, would be for the benefit of secured parties and searchers, for the reasons set out in Section 2.7.3 of the Consultation Paper.
2.7.4 What type of information should be allowed in the free text field?
Proposed recommendation 4.9: That the Act not be amended to prohibit the practice described in Section2.7.4.Do you agree with the proposed recommendation? / Yes
2.7.5 Should the free text field be available for the "allpap" class?
Proposed recommendation 4.10: That the Register functionality not be amended to activate the free text field for a registration against the collateral class "allpap".Do you agree with the proposed recommendation? / Yes
Comments: Introducing a free text field (in order for a secured party to limit the scope of their registration) would mean that there is, functionally, no difference between AllPAAP and AllPAAP except. If a free text field were to be introduced for AllPAAP, then (in order to preserve the usefulness of having a separate AllPAAP class) we think that the Act (and the register) would need to clearly state that the free text had no legal effect in the case of AllPAAP (in which case there would seem to be little point in having the free text field). A searcher identifying “AllPAAP” in a top-level search, should not have to retrieve a copy of the registration certificate just to determine whether there are any limitations, exceptions or clarifying descriptions.
2.8 The "PMSI" question
Proposed recommendation 4.11: None at this stage, pending further consideration.Comments: We agree with the suggestion in Consultation Paperthat a security interest that is a PMSI should be able to be perfected by a registration that does not tick the PMSI box, on the basis that it is then an "ordinary" security interest for priority purposes, or at least does not automatically obtain PMSI super-priority by virtue of the PPSA, but subject to any contrary agreement between secured parties (e.g .in a priority deed).
Refer also our comments in response to Section 6.8.3 of Consultation Paper 3.
2.9 Description of proceeds
Proposed recommendation 4.12: None at this stage, pending further consideration.Comments: In our response to Consultation Paper 2, we strongly supported the suggestion that the Act be amended to provide for automatic perfection over proceeds. On that basis, item 2.4 of Schedule 1 to the Regulations could be deleted.
2.10.4 How broad should the concept be?
(a) Should the categories of serial-numbered property be broadened? If so, how?(b) Should the categories of serial-numbered property be reduced? If so, how?
(c) Does any change need to be made in relation to the use of patent application numbers (if patents continue to be a category of serial-numbered property)?
Comments: Opinions differ among our Members.
One of member finances “boat motor trailer” (BMT) packages and “repowers” where a new engine is fitted to an old vessel. They seek the following outcome for inboard and outboard engines: that security interests over them be registrable as ‘serial numbered goods’ in the collateral class ‘watercraft’. The serial number will be the engine/serial number. This would make an engine registration consistent with the other components of a BMT package and reduce the risk of competing secured interests or disputes about priority with regard to boats and engines which are attached to them but are treated differently. They state that this would have the potential to improve the market for consumer and business finance by assisting financiers to identify existing security interests quickly and cheaply and thereby to approve, document and settle BMT facilities more efficiently.
More detailed information and reasoning is set out in Attachment “A”. This particular member currently operates only in the consumer market, and some of their concerns relate to the fact that a secured party cannot get a PMSI in respect of a boat motor to be used predominantly for personal purposes.
We supported the proposed recommendation in paragraph 6.8.1.3 of Consultation Paper 2 that ss 14(2)(c) and (2A) be deleted. If this is implemented, some of these concerns would be alleviated. However some of these issues will also be relevant to the financiers of commercial vessels, particularly in relation to finances of repowers/replacement engines for existing vessels.
We also received the following responses:
1. We support retention of the existing categories of serial-numbered property. We have no view on patent application numbers.
2. We agree that extending the concept of serial numbered property should not be favoured. As provided in the response to Consultation Paper 3, a clearly articulated process of allowing a secured party to perfect its interests over property subleased or provided to a third party should be set out in the PPSA. As further provided in the response to Consultation Paper 3, removal of the vesting provisions may allow a secured party in these circumstances to exercise its rights over the property with a third party as an unperfected security interest.
3. The serial-numbered property categories could be broadened and while we agree that the most robust system would be by making reference to a unique and verifiable number (eg. a government-issued VIN), we note that for motor vehicles, Chassis Numbers and Manufacturer Numbers are also valid identifiers which are not government-issued and may not be unique and verifiable. There is no reason why other serial numbers may not be used (eg. photocopiers and other items of office machinery). Perhaps the use of identifiers for expanded categories could be optional, and at the same time, limit the application of sections 44 and 45 to motor vehicles only.
2.10.5 The registration period