Bills Digest no. 84, 2016–17
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Law and Bills Digest Section
Purpose of the Bill
Leases and deeming
Leases that are not covered
PPS Act review
The problems with PPS leases
Issues for small business—general
Issues for the hire and rental
Recommendations of the Whittaker
Lease with an indefinite term
Removing references to bailment
Amending the ‘one year’ test
Senate Selection of Bills Committee
Senate Standing Committee for the
Scrutiny of Bills
Policy position of non-government
Position of major interest groups
Statement of Compatibility with Human
Parliamentary Joint Committee on
Key issues and provisions
Date introduced: 1
House: House of
day after Royal Assent
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
All hyperlinks in this Bills Digest are correct as
at March 2017.
Purpose of the
The purpose of the Personal Property Securities Amendment
(PPS Leases) Bill 2017 (the Bill) is to amend the Personal Property
Securities Act 2009 (PPS Act) to extend the minimum duration of
PPS leases from more than one year, to more than two years. The amendments will
operate so that leases of an indefinite term will not be deemed to be PPS
leases unless, and until, they run for a period of more than two years.
The PPS Act was enacted to create a single,
nationally consistent register for security interests
over personal property.
Generally, it has always been recognised that a secured party who has
possession of the secured goods is protected by virtue of physically controlling
the item. However, in many security arrangements, the goods are in the
possession of the borrower. In that case, there is a risk that the property
could be used as security for subsequent borrowings without the original or
subsequent lender being made aware of the other party’s security interest. If
the borrower defaults on its obligations secured by the goods, then one of the
lenders is likely to be prevented from enforcing its security by the other
The solution to this problem was to create registers for
security interests, where lenders could check if any other person has
registered a security interest over a particular item or good.
Prior to the enactment of the PPS Act:
were different registers for different kinds of debtor
were different registers for different kinds of property
were different registers for different forms of security arrangement
were no registers for some kinds of securities
were different rules for registering securities and
different registers had different consequences of non-registration.
The PPS Act addressed these disparities by establishing
the Personal Property Securities Register (the PPS Register) which consolidated
and replaced existing Commonwealth, state and territory registers.
The PPS Act created ‘one single national set of rules and a single
national online register’.
It is a comprehensive law containing the rules ‘governing the validity,
priorities, enforcement and extinguishment of security interests in all
Section 12 of the PPS Act defines a security
interest as ‘an interest in personal property provided for by a
transaction that, in substance, secures the payment or performance of an
obligation ...’ A simple example is where a bank provides a customer with a loan
to purchase a car. The customer grants the bank an interest in the car
(the personal property or ‘collateral’) which secures the repayment of
The PPS Act is not concerned with:
form of the transaction (for example whether it is a mortgage, a lease or a
identity of the person who has title to the property involved.
Rather, the PPS Act requires security interests to
be perfected in order to guarantee their priority as against
other security interests over the same item of property.
One of the key ways in which perfection of a security interest is achieved
under the PPS Act is through registration of the interest on the PPS Register.
Importantly, the PPS Act made a major change to the
law as understood by many people prior to its enactment, in that it
subordinated title (ownership) of personal property to perfected
One common form of security interest is for a lender to
lease an item of personal property to a borrower, retaining the title to the
property and the right to recover possession if the borrower defaults on its
obligations. These arrangements are difficult, if not impossible, to
differentiate from genuine leases that do not secure payment or the performance
of an obligation. The PPS Act deals with this issue by excluding short-term
leases from the definition of a security interest. However, as the
lease term becomes longer, especially if it begins to approximate the useful
life of the leased property, the lease is increasingly likely to be a security
To resolve this uncertainty, the PPS Act deems longer
term leases to be PPS leases and therefore, security interests.
These leases are treated as if they were security interests, even if they do
not secure payment or the performance of an obligation.
Section 13 of the PPS Act provides that the
following are PPS leases:
lease for a term of more than one year
lease for an indefinite term even if the lease or bailment is determinable by
any party within a year of entering into the lease or bailment.
In this context, ‘an indefinite term can be taken to mean a non-defined period
of time or having an open ended date of conclusion’
lease for a specified term of less than one year which contains options to
renew the lease (either automatically or at the election of one of the parties)
so that the total term, or terms, of the lease might exceed one year and
a lease is for a specified term of less than one year but the lessee remains in
possession of the goods with the consent of the lessor (that is, the hire
company) after the expiry of the initial term so that the total term, or terms,
of the lease exceed one year.
are not covered
Leases that are not security interests for the purposes of
section 12 of the PPS Act, and are not otherwise deemed to be PPS
leases (that is, the term is less than one year) fall outside the scope
of the PPS Act. In these cases, the hire business would rely on proof of
its ownership of the property which is the subject of such a lease (for
example, the lease agreement) to avoid loss of the property in the event of the
PPS Act review
Section 343 of the PPS Act requires the Minister to
ensure that a review of the operation of the PPS Act be undertaken and
completed within three years after the registration commencement time,
which is the start of 30 January 2012.
Accordingly, on 4 April 2014, the Attorney-General,
Senator George Brandis, launched the review and issued terms of reference for
Mr Bruce Whittaker, a partner with the law firm Ashurst, was appointed to lead
the review of the PPS Act (Whittaker Review).
As part of the review process, Mr Whittaker issued four
consultation papers and sought public comment in respect of each.
An interim report was delivered to the Attorney-General on 31 July 2014.
The final report on the PPS Act review
was tabled before Parliament on 18 March 2015.
problems with PPS leases
The Supreme Courts of New South Wales
and Western Australia
have interpreted the operation of the PPS Act in relation to PPS
leases. In both cases a hirer used property owned by someone else as security
for borrowing—without the knowledge of the owner of that property. When the
hirer entered into insolvency, the liquidator had an enforceable right to
possession of the property because the owners of the property had not
registered their interest on the PPS Register.
Had they done so, it would not have been possible for a
third party to borrow against it as their lenders would have been alerted that
the borrower was not the owner of the property.
The first round of submissions to the Whittaker Review dealt
broadly with issues which are particular to small business. In summary, those
levels of awareness about the PPS Act amongst the small business
Some small businesses were unaware of the existence of the PPS Act, some
were unaware that it was relevant to their business operations and others were
unaware that a failure to engage with the PPS Act may have adverse
complexity of the PPS Act meant that small businesses needed
professional advice, with the cost of such advice considered to be an issue
and searching processes were financially and administratively burdensome for
small businesses, with some suggesting that small businesses are forced to
weigh the cost of registration against the risks of not registering.
the hire and rental industry—specific
The submission to the Whittaker Review by the Hire and
Rental Industry Association (HRIA) sets out the problems specifically experienced
by the hire and rental industry. The industry services the construction and
mining sectors by providing access to earthmoving and heavy equipment, medium
to small equipment for trade contractors, cranes and access equipment, mining
and related equipment, scaffolding, forklifts and portable accommodation.
According to HRIA:
The industry is driven by the preference of large numbers of
construction and mining firms to hire equipment, rather than purchasing it,
based on a desire to remain flexible, reduce capital and maintenance
expenditure and gain access to the latest technologies.
The first problem identified by the HRIA is that
property owned by hire companies can be lost when a customer defaults or
becomes insolvent, as is evidenced by the outcomes in the court cases set out
The second problem is that the PPS Act is
considered to impose a regulatory, financial and administrative burden on hire
businesses which is ‘excessive and onerous’.
This problem is said to be magnified for small businesses in that industry for
the following reasons:
hire businesses cannot afford to generate or obtain expertise about the PPS
Act—which they see as ‘unquestionably highly complex’
hire businesses are generally exposed to significantly greater credit risk
because their customer base may comprise of smaller companies in the
construction industry. In addition, they will have few credit assessment and
credit protection skills.
In addition, according to the Law Council of Australia:
One of the concerns that those who have contributed to this
submission have experienced when working with small businesses is the barrier
imposed by the cost of resolving disputes relating to the operation of the Act.
Clients have frequently been left in a position where another party is
wrongfully refusing to deliver up possession of collateral to which the client
is entitled to immediate possession under their priority security interest. The
client is left with two alternatives when negotiations break down, which are
either to commence costly legal proceedings in a court or not enforce their
rights. This is hardly a satisfactory result for small businesses, which often
do not have the financial capacity to run a ‘test’ case on a particular aspect
of the Act.
Unsurprisingly, ‘representatives of the equipment hiring
industry do not believe the PPS Act should apply to them’.
This Bill does not represent the first response to the
problems identified by small business in relation to PPS leases. During the
course of the Whittaker Review, the Government enacted the Personal Property
Securities Amendment (Deregulatory Measures) Act 2015 so that certain
categories of leases would no longer be deemed to be PPS leases.
According to the Explanatory Memorandum for the originating Bill, this would ‘simplify
the deeming provisions in the PPS Act and minimise the need for small
and medium hire business to make registrations in respect of leases of a term
of less than 12 months’.
The amendment was consistent with one of the
recommendations in the final report of the Whittaker Review.
of the Whittaker Review
The final report of the Whittaker Review stated:
The concept of the PPS lease, and the consequences for an
owner of goods if they enter into a PPS lease with those goods, was the subject
of far more comments (and criticisms) in the submissions than was the case for
any other topic. Submissions from the short-term hiring industry were
especially vehement in their criticism of the fact that their hiring activities
are subject to the Act. They objected in particular to the fact that they are
at risk of losing ownership of their goods in the insolvency of the customer,
if they have hired the goods to the customer for an indefinite period and the
customer becomes insolvent during the term of the hire. This was said to be an
intolerable outcome ...
an indefinite term
The Whittaker Review noted the concerns of short-term
hiring industry businesses which commonly lease goods out on short-term
arrangements to a large number of customers—and, in particular, concerns about the
cost and administrative burden associated with managing proper PPS Act registration
One solution would be to exclude the short-term hiring
industry from the operation of the PPS Act altogether. However, the Whittaker
Review dismissed the suggestion that the industry could be ‘carved out’ of the Act.
Instead it recommended that the definition of PPS lease should be amended to
capture a lease of goods:
an agreed term of more than one year (taking into account renewal options) or
a period of initially less than one year, once the lease has in fact continued
for more than one year.
references to bailment
Some submitters to the Whittaker Review recommended that
references to bailments in the definition of PPS lease should be removed.
For instance, the joint submission by Allens, Ashurst, Herbert Smith Freehills,
King & Wood Mallesons and Norton Rose Fulbright Australia states:
This is a particular trap for small businesses who may be
unaware of the concept. The difficulty is that a reference to bailment means
that many normal commercial arrangements which should not be regarded as
leases, are caught. If the lessor does not register a financing statement, the
security interest will vest on appointment of an administrator or liquidator etc.
This means that it will lose its interest in the asset and become an unsecured
creditor for its value, when very little was owing to it.
The Whittaker Review noted that not all bailments are captured
by the PPS Act. Rather, it only applies to bailments by a bailor who is
regularly engaged in the business of bailing goods
and where the bailee provides value for the bailment.
Nevertheless, it was acknowledged that ‘owners of goods who give possession of
the goods to others in the course of their business activities have not been
confident that they fall within one of the exclusions’.
The Whittaker Review concluded that the limitations on the
types of bailments that are captured by the definition of PPS lease come close
to restricting many of those bailments to ones that are in effect leases as
well. That being the case, it was recommended that ‘the definition of PPS lease
be amended to remove all references to bailments’.
The Bill does not put that recommendation into effect.
the ‘one year’ test
The Whittaker Review noted that some submitters suggested
changes so that the ‘one year’ test should be extended to two or three years.
However, the Whittaker Review noted:
concern that the lessee in possession of goods for an extended period is able
to mislead outsiders into believing that the lessee has better title to the
leased goods than is in fact the case, because the lessor’s ownership interest
is not visible and
concern that it is often very difficult to say whether a particular lease is in
fact a security interest under section 12. The ‘one year’ test in
section 13 adds clarity.
That being the case, the Whittaker Review recommended that
references in section 13 of the PPS Act to ‘one year’ not be changed.
Contrary to that recommendation, the amendments in the
Bill extend the ‘one year’ test to two years.
Selection of Bills Committee
The Senate Selection of Bills Committee recommended that
the Bill not be referred to a committee for inquiry and report.
Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills
had no comment on the Bill.
position of non-government parties/independents
At the time of writing this Bills Digest, no policy
position on the Bill has been announced by the Australian Labor Party (Labor),
other non-government parties or the independents.
major interest groups
As stated above, small business, particularly the
short-term hiring industry, would prefer that the PPS Act did not apply
to their business. In its submission to the Whittaker Review, Elphinstone
The Personal Property Securities Act 2009 is
completely WRONG. We should not have to go to another level of
administration to protect our property. Our hire agreement should be strong
enough to do that. We should have the legal right to remove our legally owned
property from a site that has gone into administration without fear of Federal
Court injunction whether it is registered on the PPSR or not!
According to the Australian Bankers’ Association (ABA),
small businesses are:
... not coming to grips with the notion that title to personal
property has become subordinated to the notion of a security interest. This has
led to a consequential lack of knowledge by a business on how the Act is able
to protect the business’ interests where personal property moves beyond the
control of the business. By comparison, REVS [register of encumbered vehicles]
was well understood ...
The ABA suggested that one area of simplification may be
that certain interests (such as PPS leases) should no longer be deemed to be a
The Australian Finance Conference (AFC) stated that its
members were profoundly (and in some cases detrimentally) affected by the
changes which resulted from the introduction of the personal property
securities regime. The AFC conceded, though:
Overall the changes were beneficial to the financial services
industry, but our members in the equipment and motor vehicle finance sector
believe that some critical changes are needed to aspects of the PPSA ... to
ensure that the full benefits of the PPSA can be realised across all business
and finance sectors.
However, the AFC opined that ‘any exclusion for small
business, or for a sector of it, would result in a significant detriment in
accessing finance and in protecting small businesses’ financial security’. In
addition, AFC rejected the idea of a carve-out for all or some types of small
The Bill is not expected to have any financial impact.
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed
the Bill’s compatibility with the human rights and freedoms recognised or
declared in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.
Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights considers
that the Bill does not raise human rights concerns.
The Bill amends paragraph 13(1)(a) of the PPS Act so
that a PPS lease is a lease or bailment of goods for a term of
more than two years.
This is an increase from one year to two years. The effect is to make clear
that such an arrangement is a security interest which should be
registered on the PPS Register.
Item 3 of the Bill amends existing paragraph
13(1)(c) of the PPS Act so that a PPS lease is also a
lease or bailment of goods for a term of up to two years which contains options
to renew the lease (either automatically or at the election of one of the
parties) so that the total term of the lease exceeds two years. This is an
increase of one year to two years.
Item 2 of the Bill deletes the existing broad
reference in paragraph 13(1)(b) to a lease or bailment of goods for an
indefinite term. Items 4 and 5 of the Bill amend existing paragraph
13(1)(d) of the PPS Act to import the reference to a lease or bailment
for an indefinite term into that paragraph. The items operate so that a PPS lease
is also a lease or bailment of goods for a term of up to two years—or a lease (but
not a bailment) for an indefinite term—where the lessee or bailee, with the
consent of the lessor or bailor, retains uninterrupted (or substantially
uninterrupted) possession of the leased or bailed property for a period of more
than two years.
The exclusions from the definition
of PPS lease in existing subsection 13(2) of the PPS Act are unchanged.
This means that the following arrangements are not PPS leases:
lease by a lessor who is not regularly engaged in the business of leasing goods
bailment by a bailor who is not regularly engaged in the business of bailing
lease of consumer property as part of a lease of land where the use of the
property is incidental to the use and enjoyment of the land or
lease or bailment of personal property prescribed by the regulations for the
purposes of the definition—regardless of the length of the term of the lease or
The Bill makes minor changes to a deeming provision in
section 13 of the PPS Act which sets out the arrangements which
constitute a PPS lease and which are, therefore, registrable on
the PPS register.
The effect of the changes is to define a PPS lease
as a lease or bailment of more than two years. This is an increase from the
current duration of one year. In addition the amendments will operate so that
leases (but not bailments) of an indefinite term will not be deemed to be PPS
leases unless, and until, they have run for a period of more than two years.
While some of the submitters to the Whittaker Review would
consider that the Bill will be of benefit, others would likely consider that
the Bill does not go far enough. It does not delete references to bailment as
recommended by the Whittaker Review. Nor does it address the many and varied
complaints about the cost and difficulty for small business in complying with
the terms of the PPS Act.
12 of the PPS Act defines a security interest as ‘an
interest in personal property provided for by a transaction that, in substance,
secures the payment or performance of an obligation ...’
10 of the PPS Act defines personal property as property,
(including a licence) other than (a) land or (b) a right, entitlement or
authority that is granted by or under a law of the Commonwealth, a State or a
Territory; and declared by that law not to be personal property for the
purposes of the PPS Act.
Law Reform Commission (ALRC), Personal
property securities, Interim report, 64, ALRC, Sydney, 1993, pp. 12–13.
Pyburne and D Spooner, Personal
Property Securities Bill 2009, Bills digest 36, 2009–10, Parliamentary
Library, Canberra, 2010, pp. 18–20.
Memorandum, Personal Property Securities Amendment (Registration
Commencement) Bill 2011, p. 1.
Act, section 21.
importance of perfection’, Law Society Journal, 49(8),
September 2011, pp. 60–63 at p. 61.
is the delivery of goods by their owner into the possession of another person
on the promise that they will be redelivered to their owner or dealt with in a
specific way. A common example of bailment is hiring a car. In that case the
hire care company owns the car but allows the customer to take possession of it
on the promise that it will be returned to the hire car company at the end of
the period of the hire contract.
Memorandum, Personal Property Securities Amendment (PPS Leases) Bill 2017,
. Personal Property
Securities (Migration Time and Registration Commencement Time) Determination,
Brandis (Attorney-General), Statutory
review of the Personal Property Securities Act, media release,
4 April 2014.
Department (AGD), ‘Statutory
review of the Personal Property Securities Act 2009’, AGD website.
of the Personal Property Securities Act 2009: interim report, (the
Whittaker Review), AGD, Canberra, 2014.
of the Personal Property Securities Act 2009: final report, (the
Whittaker Review), AGD, Canberra, 2015.
Civil (P&E) Pty Ltd, Re; Albarran v Queensland Excavation Services Pty Ltd
(2013) 277 FLR 337,  NSWSC
852 (27 June 2013).
v Spiers Earthworks Pty Ltd (2014) 99 ASCR 214,  WASC 139
(16 April 2014).
is particularly so in the rural sector. See National Farmers’ Federation, Submission
to the Review of the Personal Property Securities Act 2009, submission no. 36,
13 June 2014, p. 5; Australian Livestock and Property Agents
Association Ltd, Submission
to the Review of the Personal Property Securities Act 2009, submission no. 21,
6 June 2014, p. 3.
of the Personal Property Securities Act 2009, Summary
of first-round submissions: issues particular to small business, 7 July 2014,
p. 3; Civil Contractors Federation, Submission
to the Review of the Personal Property Securities Act 2009, submission no. 25,
June 2014, p. 3.
and Rental Industry Association, Submission
to the Review of the Personal Property Securities Act 2009, submission no. 15,
Council of Australia, Submission
to the Review of the Personal Property Securities Act 2009, submission no. 18,
6 June 2014, paragraph 15, p. 3.
report, (The Whittaker review), op. cit., p. 28; Elphinstone
to the Review of the Personal Property Securities Act 2009, submission no. 11,
5 June 2014, p. 2.
of Australia, ‘Personal
Property Securities Amendment (Deregulatory Measures) Bill 2014 homepage’,
Australian Parliament website.
Memorandum, Personal Property Securities Amendment (Deregulatory Measures)
Bill 2014, p. 1.
report, (the Whittaker Review), op. cit., recommendation 19,
recommendation 21, p. 82.
Council of Australia, Submission
to the Review of the Personal Property Securities Act 2009, op. cit.,
paragraph 25, p. 4.
Ashurst, Herbert Smith Freehills, King & Wood Mallesons, and Norton Rose
Fulbright Australia, Joint submission
to the Review of the Personal Property Securities Act 2009, submission no. 29,
6 June 2014, p. 26.
Act, paragraph 13(2)(b).
Act, subsection 13(3).
report, (the Whittaker Review), op. cit., p. 79.
recommendation 20, p. 80.
recommendation 22, p. 84.
Standing Committee for the Selection of Bills, Report,
3 2017, The Senate, Canberra, 23 March 2017.
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 3, 2017, The Senate, Canberra, 22 March 2017, p. 31.
to the Review of the Personal Property Securities Act 2009, op. cit., p. 2.
Bankers’ Association, Submission
to the Review of the Personal Property Securities Act 2009, submission no. 17,
6 June 2014, p. 1.
Finance Conference, Submission
to the Review of the Personal Property Securities Act 2009, submission no. 34,
10 June 2014, p. 1.
Memorandum, Personal Property Securities Amendment (PPS Leases) Bill 2017,
Statement of Compatibility with Human Rights can be found at page 3 of the Explanatory
Memorandum to the Bill.
Joint Committee on Human Rights, Report,
2, 2017, The Senate, Canberra, 21 March 2017, p. 57.
Act, paragraph 13(1)(a) amended by item 1 of the Bill.
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