In August 2014 the Federal Government released its preliminary report on the operation of the Personal Property Securities Act (the “PPSA”). This report will be followed in January 2015 with a final report on what changes, if any, should be made to the PPSA.
Rationale of PPSA: The basis of the PPSA is that ownership of a business asset in the possession of another is no longer sufficient to protect the owner’s rights to that asset. An ownership interest in personal property – that is, property other than land - can now become subordinated to the interests of a third party or even lost entirely. This applies mainly in credit transactions involving a business or a consumer.
The government’s report notes that this radical change to the traditional law is the fundamental source of many business and consumer concerns with the PPSA.
Briefly, those concerns include:
Very confusing: Many businesspeople do not associate the PPSA with assets or equipment used in their business. Small businesses in particular see the word ‘personal’ as referring to assets belonging to an individual person, not assets associated with their commercial activities.
Too technical: Many people were uncomfortable with the way the PPSA was drafted in specialist, technical language. They want the PPSA simplified so that its provisions are more accessible, even to many lawyers as well.
Too complex: Submissions to the review have argued that the PPSA is more complex than it needs to be. This is partly because the statute introduces terminology and concepts relevant to the commercial law of the United States in the 1950s. Obviously some of this terminology and its embedded American case law guidance have little relevance to current Australian law.
Too long: The architects of the PPSA may have tried too hard to be helpful. The statute is far longer than its Canadian and New Zealand counterparts, primarily because it seeks to add additional wording in an effort to explain what its provisions are doing and not just leave them to be read on their face. The drafters have attempted to introduce a statute which is ‘best of breed’, but in so doing have provided legislation remote from the realities of the marketplace.
Not intuitive: As regards on-line registration of security interests, the general comment is that the registration process is not intuitive and very difficult to navigate.
Too costly: Anecdotally the PPSA has not (yet) achieved the savings in business costs that its proponents promised and has actually had the perverse effect of increasing them. These additional costs are the ones which financiers inevitably pass on to consumers and borrowers in small business.
In conclusion, given the breadth of the PPSA’s criticisms it is difficult to know what final recommendations the statute’s reviewers will ultimately make. There is pressure to amend the PPSA to make it briefer and easier to understand, but this would be a lengthy and costly process in itself. And amending legislation can be complex in its own right.
We suggest that to deal with the many issues identified by the review so far, the laws should eventually be adjusted in some way so as to be seen to address the many criticisms, but that wholesale changes should be avoided. Amending legislation should be followed shortly thereafter by a revised, “slimmed-down” consolidation of a PPSA “Mark II”. The new consolidation should be made widely available not just on-line but in compact hard-copy, so that PPSA “booklets” could be taken into factories and onto worksites in a form that business people (and lawyers) can more readily work with.