Review of the Personal Property Securities Act 2009

Consultation Response TemplateConsultation 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: Allens, Ashurst, Herbert Smith Freehills, King & Wood Mallesons and Norton Rose Fulbright Australia
Organisation:
Background/Expertise/Interest in PPSA Review:
We are large Australian law firms which each have significant corporate financing and insolvency practices. Since the inception of the reform process which introduced the Personal Property Securities Act 2009 (Cth) (“PPSA”) and the Personal Property Securities Regulations 2010 (Cth) (“PPS Regs”), we have seen them operate in practice in a wide variety of transactions and have advised a wide variety of business clients on them. We regularly undertake registrations and searches on the Personal Property Securities Register (“Register”). Members of our firms have published numerous articles and contributed chapters to various books in connection with PPSA. We lecture on the PPSA at universities and regularly speak at industry conferences in Australia.
Contact Details:
Helena Busljeta
T +61 2 9296 2541 | M +61 438 640 493

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
Comments:
The recommendations are:
a)A registration need not indicate whether the collateral is consumer property or commercial property. We agree.
b)All registrations against individuals have a maximum term of 7 years. We do not agree. We consider that this is too restrictive as some financing transactions involving individuals may extend beyond this time. It exposes secured parties to the risk of expiring registrations and so imposes an ongoing monitoring burden on them. However, a 7 year term might be more workable if the Registrar was required to give a notice to the secured party before the registration expires so that the secured party is alerted of the imminent expiry and can extend the registration if necessary.
c)A registration against serial numbered property need not identify the grantor if the grantor is an individual. We agree.

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:
Yes, for the reasons stated in the paper.

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:
Yes, for the reasons stated in the paper.

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 stated in the paper.

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 stated in the 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:
We agree that this would be a useful new collateral class as it enables a secured party to enter a more meaningful description of collateral. While we do not object to the term “relating to” we would prefer to use “in connection with” because it is of wider import. This will be very useful in project finance, and in relation to cross-security interests in joint ventures, among others.

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 support the proposed collateral classes because they simplify the registration process subject to the following:
  • We query the need to have a “serial numbered property” collateral class. Under the proposed changes, serial numbers will only need to be registered against individuals and against other grantors to avoid taking free risk. If this class is retained, then it should not be mandatory to select it unless a serial number is being registered (for example, the “other goods” class should also be able to cover a motor vehicle where no serial number is being registered).
  • We do not think an “accounts” collateral class is required for the purposes of s64 (as stated in our response to Consultation Paper 2, we do not think a secured party should have to register against the accounts collateral class to obtain priority under s64).
  • As stated in our submission of 6 June 2014, the PPSR collateral classes and the PPS Regs should be aligned.

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:
No.

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:
While we consider that any text entered into the free text field comprises part of the description of the collateral (as defined in s10), we also consider that it would be helpful to clarify the legal effect of the free text field.

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:
Yes, for the reasons stated in the paper. See our comments in relation to 4.2.4 below.

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
Comments:
We agree that the practice of using “ALLPAAP” or “ALLPAAP except” where the security interest is over assets that would fall within a narrower collateral class should continue to be possible for the reasons set out in our submission of 6 June 2014.

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?
Comments:
We make no submission.

2.8 The "PMSI" question

Proposed recommendation 4.11: None at this stage, pending further consideration.
Comments:
We consider that s164 of the PPSA should expressly state that registering a PMSI as a non-PMSI is not a seriously misleading defect. This will have the result that the security interest does not have PMSI super priority but the registration remains valid. For more background to our concerns, see our submission of 6 June 2014.

2.9 Description of proceeds

Proposed recommendation 4.12: None at this stage, pending further consideration.
Comments:
We agree with the suggestion that the Act be amended so that a security interest over proceeds is automatically perfected, if the security interest over the original collateral was perfected by registration.

2.10.4 How broad should the concept be?

(a) Should the categories of serial-numbered property be broadened? If so, how?No, for the reasons stated in the paper.
(b) Should the categories of serial-numbered property be reduced? If so, how?No, we can see no policy driver for this.
(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)?Yes, this should be rectified.
Comments:
Re (c), one solution might be to provide for IP Australia to notify the PPS Register, or the secured party, when the patent is issued and of the patent number. If that is not possible, registration against the patent application number should be sufficient to perfect the registration against the patent even after the patent is issued.

2.10.5 The registration period

Proposed recommendation 4.14: That the table in s 153(1) of the Act be amended to provide that a registration against serial-numbered property have a maximum period of seven years if the grantor is an individual, but that it be able to have the same registration period as for any other collateral, in the case of any other type of grantor.
Do you agree with the proposed recommendation? / Yes
Comments:
We consider that 7 years is too short for aircraft, watercraft and intellectual property.

2.10.6.1 Motor-vehicles - breadth of the concept

(a) Should the concept of "motor vehicle" under the Act more closely with its vernacular meaning?
(b) If not, should it be simplified in some other way? If so, how?
Comments:
We have no objection to aligning the definition of “motor vehicle” more closely with its vernacular meaning or otherwise simplifying it.

2.10.6.2 The July 2014 amendment

Proposed recommendation 4.16: That the Regulations be amended as described in Section 2.10.6.2.
Do you agree with the proposed recommendation? / Yes
Comments:
Yes, for the reasons stated in the paper. However, it is not ideal that searchers will be required to do multiple searches to cover all possible scenarios. It would be preferable if a solution could be found.
If no solution can be found, we would still support the recommendation.

2.10.7 Aircraft

Proposed recommendation 4.17: If aircraft continues to be a class of serial-numbered property for the purposes of the Act, that item 2.2(1) of Schedule 1 to the Regulations be amended so that a registration to perfect a security interest over aircraft may include the aircraft's serial number, but is not required to.
Do you agree with the proposed recommendation? / Yes
Comments:
Yes, for the reasons stated in the paper.

2.10.8 Intellectual property licences

Proposed recommendation 4.18: If Government decides to continue to apply the concept of serial-numbered property to certain types of intellectual property, that items 2.2(1)(a)(ii)(E) and (c)(iii)(E) of Schedule 1 to the Regulations be deleted.
Do you agree with the proposed recommendation? / Yes
Comments:
Yes, for the reasons stated in the paper.

2.11.1.1 Individual grantors - the rules

Proposed recommendation 4.19: Do you agree that financial institutions should use the same rules as others to identify grantors, rather than AML/CRF Act data?
Comments:
We consider that it is important that financial institutions continue to be able to rely on AML/CTF Act data.

2.11.1.2 Is a driver's licence appropriate as the principal source of details for an individual grantor?

Proposed recommendation 4.20: That items 3 to 8 of the table in item 1.2 of Schedule 1 to the Regulations not be amended.
Do you agree with the proposed recommendation? / Yes
Comments:
Yes, for the reasons stated in the paper.

2.11.2 Body corporate grantors

Proposed recommendation 4.21: That item 5 of the table in item 1.3 of Schedule 1 to the Regulations be amended to provide that the identifying details for a body corporate that is not captured by any of items 1 to 4 of the table be its name or identifying number under the law under which it is incorporated.
Do you agree with the proposed recommendation? / Yes
Comments:
Yes, for the reasons stated in the paper.
If these changes are not made, we repeat our submission of 6 June 2014 that there is some uncertainty over what is meant by “provided for” in a constitution. For example, does this mean the name set out in the constitution or the name as amended by special resolution? It would be helpful if this was clarified.

2.11.3.2 The use of ABNs

Should the use of ABNs for trusts be discontinued?
Comments:
No. ABNs enable registrations against trustee grantors who are professional trustee companies to identify the relevant trust. It is suggested in the paper that if there a new collateral class for "all present and after-acquired property relating to", the trust could be recorded in the free text field. However, if the relevant trust is recorded in the free text field, this is not a complete solution because the free text field cannot currently be searched. So, this would mean that there will be high volumes of registrations against say Perpetual Trustee but no way to search those registrations to identify particular trusts.
Sometimes an entity may have more than one ABN. If ABNs are retained, the PPSA and PPS Regs should make it clear that registration against any ABN of an entity is sufficient.

2.11.3.3 The name of the trust

Proposed recommendation 4.23: That a registration relating to assets of a trust not be required to include the name of the trust.
Do you agree with the proposed recommendation? / Yes
Comments:
Yes, for the reasons stated in the paper.

2.11.3.4 A trust that has both an ARSN and an ABN

Proposed recommendation 4.24: If the Regulations continue to require that registrations be made against a trust's ABN, that item 1.5(1)(b) of Schedule 1 to the Regulations be amended to make it clear that it applies "to any trustee of a trust that is not a body corporate".
Do you agree with the proposed recommendation? / Yes
Comments:
We agree with the principle that where a trustee is a body corporate and the trust does not have an ARSN or ABN, the body corporate’s ACN, ARBN or name should be used (in that order). We also consider that where a trustee of a registered scheme has an ARSN, only the ARSN should be registered. The proposed amendment will clarify this. However, we also note that if the proposed amendment is made, this does not sit comfortably with the reference to “trustee details” in item 3 of the table in reg 1.5. This is because “trustee details” refer to the ACN or ARBN allocated to the trustee (see reg 1.5(4)(b)) and so assumes that the trustee is a body corporate. These are drafting anomalies which should be addressed when the regulation is reviewed.

2.11.4.1 The distinction between a partnership, and the partners in a partnership

Proposed recommendation 4.25: That the current distinction drawn in item 1.4 of Schedule 1 to the Regulations, between the assets of a partnership and a partner's net interest in the partnership, be maintained and clarified.
Do you agree with the proposed recommendation? / Yes
Comments:
As stated in our submission of 6 June 2014, reg 1.4 should not make special provision for where a partner grants security over its interest in the partnership because in that case, the details of the partner (not the partnership)should be registered as the partner is granting security in this case. This will be the position if reg 1.4(5) is deleted.

2.11.4.2 Partnerships that do not have an ABN

Should a registration be made against a partnership's name (and not the individual partners) if the partnership does not have an ABN?
Comments:
We consider that it should be possible to register against the name of a partnership where the partnership does not have an ABN. This is because making and maintaining a registration against individual partners is impractical where a partnership has hundreds of partners. We recognise that registering against a name which cannot be verified by reference to a public register is uncertain but we consider that this must be balanced against the practical difficulties of registrations against large partnerships. We suggest that some of the concerns around registrations against partnership names can be addressed if registrations are required to be made against the following details of a partnership without an ABN in the following order of preference:
  • partnership name as shown on a public register in its jurisdiction of formation
  • partnership name as shown on the document constituting the partnership
  • details of individual partners

2.11.5 Multiple grantors

Should the Act be amended to clarify when it is appropriate to include more than one person or entity in a registration as the grantor?
Comments:
Yes, for the reasons stated in the paper. Our preference is that it be made clear that it is possible to register against more than one grantor in a single registration, irrespective of whether the grantors are granting the security interest jointly or individually. From the perspective of a searcher, it makes no difference whether or not the grantors are recorded in a single registration or multiple registrations. However, allowing multiple grantors to be included streamlines the registration process for the secured party, particularly in a transaction which involves many grantors (for example, where numerous entities in a corporate group grant security to a financier or where joint venture participants grant cross-security to each other).

2.11.6 Foreign names, and exact vs close match searching

Proposed recommendation 4.28: That:
(a) the Register continue to use an exact-match methodology for searches; and
(b) the Regulations be amended to provide, in circumstances where a grantor's or secured party's name or other identification details would otherwise need to be entered on the Register in letters that are not accepted by the Register, that the registrant be able instead to use any reasonable transliteration of that name or other identifying details for the purposes of the registration.
Do you agree with the proposed recommendation? / Yes
Comments:
Yes, for the reasons stated in the paper. However, we query whether it is appropriate to require “any reasonable transliteration”. There may be differing views as to what is a reasonable transliteration. One solution may be to require that the transliteration be provided from a specified translation body or service and the Register could list authorised translation service providers. For example, Roads and Maritime Services NSW only accepts identity documents which are translated by the Community Relations Commission of NSWand the Free Translating Service provided by the Department of Social Services (DSS).[1] Another solution may be to require the transliteration be in accordance with any recognised translation or transliteration standards.

2.12.1.2 The definition of a "secured party"

Proposed recommendation 4.29: That paragraph (b) of the definition "secured party" in s 10 of the Act be deleted.
Do you agree with the proposed recommendation? / Yes
Comments:
Yes, for the reasons stated in the paper.

2.12.1.3 The table in s 153(1)