RBG Lawyers / News / March 16,2017

This article discusses the first significant amendment to come out of the statutory review of the Personal Property Securities Act 2009 (Cth) (PPSA). The Personal Property Securities Amendment (PPS Leases) Bill 2017 (PPS Lease Bill) was introduced to the Commonwealth Parliament on 1 March 2017.

 Background

It has been some time since Bruce Whittaker’s final report was issued following the statutory review of the PPSA.  The report made several recommendations for improving the PPSA, following extensive consultation with stakeholders.[1]

Relevantly, the report recommended several changes to the controversial concept of a ‘PPS Lease’.  The PPS Lease concept has been a thorn in the side of those involved in the hire industry for many years now.  However, some reprieve is on the way in the form of the PPS Lease Bill.

The PPSA treats the interest of a lessors (and bailors) of goods as a ‘security interest’ if the arrangement with its customer is considered a ‘PPS Lease’.  Where a transaction is considered a PPS Lease, the lessor/bailor must effect a valid registration on the online Personal Property Securities Register (PPS Register) to prevent third parties and insolvency practitioners appointed to their customer taking their goods.  Failure to effect a valid registration can result in the loss of the hired goods and offers little recourse against their customer.

At present, s13 of the PPSA provides that the following transactions will give rise to a PPS Lease:

  • a lease or bailment of goods of more than one year;
  • a lease or bailment of goods 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);
  • a lease or bailment of goods for a term of up to one year that is automatically renewable;
  • a lease or bailment of goods for a term of up to one year, in a case in which the lessee or bailee, with the consent of the lessor or bailor, retains uninterrupted possession of the leased or bailed property for a period of more than one year.

There are certain carve-outs for lessors/bailors not regularly engaged in the business of leasing/bailing goods and for bailments where the customer does not pay for the goods.  This article does not address those carve-outs as they remain unchanged by the PPS Lease Bill.

One of the most criticised aspects of the PPS Lease concept in the statutory review of the PPSA, particularly from the equipment hire industry, is the inclusion of indefinite leases.  As outlined above, the present position is that any indefinite lease, hire or bailment arrangement may be considered a PPS Lease even though in practice the customer may hand back possession of the goods within days or weeks of hire.

Amendments introduced by the PPS Lease Bill

 The PPS Lease Bill proposes to reduce the circumstances where a lease (or bailment) will give rise to a PPS Lease, as follows:

  • the minimum duration of a PPS Lease will change from more than one year to more than two years;
  • indefinite term leases will only give rise to a PPS Lease once the customer has retained possession of the goods for more than two years.[2]

The PPS Lease Bill, if enacted, will reduce the administrative cost of compliance that the PPSA currently imposes lessors (and bailors) in the short-term hire industry.  The above amendments will only apply to transactions entered into after the PPS Lease Bill is passed and has taken effect.  The PPS Lease Bill has not yet been passed by Parliament so the commencement date is currently uncertain.

Tips and traps

Despite the positive effect the proposed changes will have on the short-term hire industry, there are two key matters to keep in mind.

Firstly, the amended definition will capture lease arrangements that are automatically renewable, or renewable at the option of one of the parties, for one or more terms if the total of all the terms might exceed two years (as opposed to one year under the current definition).  Accordingly, if you lease goods under an arrangement that automatically converts to a month-to-month rental (or similar arrangement) or gives either party the option to extend and it is possible (even though unlikely) that the total term may exceed two years, then the transaction will still be considered a PPS Lease.  In this respect, we anticipate arguments will still arise between short-term equipment hire businesses and insolvency practitioners appointed to a customer as to whether a lease arrangement is for an ‘indefinite term’ or whether it is for a fixed term and automatically renews for periods that may exceed two years.

Secondly, the impact of s588FL of the Corporations Act 2001 (Cth) should be kept in mind where the customer is a company.  Relevantly, that section requires lessors to register their interest on the PPS Register within 20 business days of the date of the lease agreement or the registration will be invalid if the customer goes into administration or liquidation within six months of the registration.  If a lessor waits until the two year period has expired to register its interest on the PPS Register, then an administrator or liquidator appointed within six months of the registration may take the view that the registration is invalid and that the lessor has lost its rights in the leased goods.  Although it is arguable that a lessor will have 20 business days from the expiry of the two year period to register for the purposes of s588FL, effecting a registration on the PPS Register at the outset of the lease will reduce the risk of such an argument arising.

Conclusion

The reforms under the PPS Lease Bill are aimed at reducing the impact of the PPSA regime on the short-term equipment hire industry.  However, the amendments may not be as generous as they first appear where leases are renewable for a period that might exceed two years.  Equipment hire companies intending to receive the benefit of the amendments should review the provisions in their terms and conditions of trade that automatically extend the term or give either party the option to.

Further, unless and until the PPS Lease Bill is passed, lessors and bailors must continue to comply with the registration requirements in respect of indefinite term leases and leases that run for a period of more than one year (including any possible extended term).

Should you wish to obtain further information about the PPS Lease Bill or PPS leases, please contact Patrick Spelman or Emma Solomon on (07) 3009 9300.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

[1] Whittaker, Bruce. (2015). Review of the Personal Property Securities Act 2009: Final Report. Commonwealth of Australia: https://www.ag.gov.au/Consultations/Documents/PPSReview/ReviewofthePersonalProperty

SecuritiesAct2009FinalReport.pdf.

[2] Personal Property Securities Amendment (PPS Leases) Bill 2017, Explanatory Memorandum.