Equipment Hire Industry Alert – Amendments to the Personal Property Securities Act

Corporate & Commercial 19 May 2017

The Personal Property Securities Act 2009 (Cth) (the PPS Act) has increased the legal compliance and administrative burden on businesses involved in the leasing, hiring or bailing of goods.  In order to reduce this burden, the Personal Property Securities Amendment (PPS Leases) Act 2017 (Cth) (the Amending Act) (as it will be known when it receives Royal Assent) reduces the impact of the PPS Act on the industry.  The Bill giving rise to the Amending Act was passed in the Senate on 11 May 2017.

By way of recap, the PPS Act introduced the concept of a “PPS Lease”.  A PPS Lease gives rise to a deemed security interest and the owner of goods the subject of a PPS Lease is required to register and perfect this security interest within the requisite time frame in order to ensure:

  1. its legal title in the goods does not vest in the lessee or bailee in insolvency; and
  2. it maintains priority over any other secured parties holding security interests in the personal property of the lessee or bailee.

In the Maiden Civil Case[1] an equipment lessor failed to register and therefore perfect its deemed security interest in three Caterpillar vehicles the subject of a PPS Lease. When the lessee suffered from an insolvency event, a secured creditor of the lessee sought to enforce its perfected all-property security interest against the personal property of the lessee. It was held that the creditor’s perfected/registered security interest took priority over the lessor’s unperfected/unregistered security interest. This entitled the creditor to enforce its security against the Caterpillar vehicles. This case illustrates the fundamental risk facing commercial lessors and bailors of goods under a PPS Lease in circumstances where there is a failure to perfect/register the deemed security interest.

The definition of a “PPS Lease” will be restricted in the Amending Act.

Originally, the PPS Act defined a PPS Lease as a lease or bailment of goods:

  1. for a term of more than 1 year for non-serial numbered goods;
  2. for a term of more than 90 days for serial numbered goods (such as motor vehicles, watercraft and aircraft); or
  3. for an indefinite term.

In 2015, the 90 day term for serial numbered goods was abolished leaving a uniform 1 year term threshold.   When the Amending Act receives Royal Assent, the minimum term of a PPS Lease will be extended to be 2 years. Additionally, leases or bailments of goods for an indefinite term will only meet the definition of a PPS Lease when they have been on foot for a period of 2 years or more.

This change will only affect PPS Leases entered into after the Amending Act comes into force. Existing leases and bailments of goods will be subject to the definition of PPS Lease that applied at the date of entry into the lease or bailment.

For businesses involved in the commercial leasing, hiring or bailing of goods, we recommend the following steps are taken to ensure compliance under the PPS Act is maintained:

  1. ensure that standard form terms and conditions incorporate provisions dealing with the operation of the PPS Act as amended by the Amending Act;
  2. review existing leasing/bailment arrangements to ensure all security interests are perfected in accordance with the applicable historical definition of PPS Lease; and
  3. review future leasing/bailment arrangements to ensure all future security interests are perfected in accordance with the new definition of PPS Lease.

If you require advice or further information in relation to any of the matters discussed in this article, please contact our Corporate & Commercial team on 03 5273 5263.

[1] Maiden Civil (Pande) Pty Ltd; Richard Albarran and Blair Alexander Pleash As Receivers and Managers of Maiden Civil (Pande) Pty Ltd and Ors v Queensland Excavation Services Pty Ltd and Ors [2013] NSWSC 852

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