The Personal Property Securities Act 2009 (Cth) (PPSA) has been part of the landscape of taking security in Australia since 20 January 2012. The Government has now proposed significant changes to the PPSA regime. If, and when these amendments come into force, practitioners will need to relearn important PPSA rules.
Proposed reforms to simplify the PPSA
An extensive review of the PPSA led to a report being tabled before Parliament in 2015. The report identified several issues with the PPSA and made nearly 400 recommendations. These recommendations advised how the PPSA could be amended to address those issues.
On 22 September 2023, the Australian Government released its long-awaited legislative response to the report, proposing to accept 345 of the recommendations. These responses were contained in the Government’s Exposure Draft package which included proposed amendments to the PPSA and new draft PPSA regulations.
The proposed reforms are intended to both simplify the PPSA regime by reducing unnecessary complexity and providing clearer and more accessible rules. Alex Chernishev, Head of Banking & Finance, Managing Editor at Practical Law Australia, said the proposed amendments will help to make the PPSA regime easier to understand.
“While these changes will take practitioners some time to get acquainted to, they will make the PPSA easier to navigate and understand. For example, the concept of “chattel paper” which has caused a lot of confusion will be removed from the Act. Also, the registration process should be a lot quicker and simpler. This will assist financiers, businesses and consumers,” he said.
What are the proposed changes to the PPSA?
Some of the key changes that have been proposed to the PPSA include:
Modified definitions
Importantly, the definitions of “security interest” and “personal property” will be modified under the proposed amendments. The concepts of “consumer property” and “commercial property” will be removed. Most of the changes are clarificatory and will make it easier to determine relevant exceptions.
Removal of the chattel paper
The concept of chattel paper will be removed from the PPSA. The 2015 report found that chattel paper is not a commonly used concept under Australian law, and its inclusion in the PPSA caused some confusion, particularly when registering security interests on the Personal Property Securities Register (PPSR).
Simplified PPSR registrations
Under the proposed reforms the PPSR registration process will be simplified and streamlined. The nine collateral classes currently in the PPSA will be reduced to six. It will also be possible for one registration to cover several collateral classes.
Moreover, the information required to be included in a PPSR registration will be slimmed down. It will no longer be necessary to indicate whether collateral is consumer or commercial property, or inventory, or whether a security interest is subordinated or a purchase money security interest (PMSI).
“From a practical perspective, the proposed changes should make the registration process much simpler. For one, the ability to select multiple collateral classes in a financing statement will mean that there is likely no need to make multiple registrations in most cases. This will make registrations quicker and less burdensome,” said Alex.
Enforcement rules
The enforcement rules in Chapter 4 of the PPSA will be completely revamped. While the substance of the enforcement process will remain largely the same, the revised Chapter 4 will be more user friendly and will logically group provisions together in a way which follows the sequence of the process of enforcement.
While under the current PPSA, parties are allowed to contract out of specific Chapter 4 provisions, the new rules take a broader approach and allow for contracting out of all provisions other than what are called the “mandatory enforcement rules”.
“Security documents typically include a provision where the parties agree to contract out of certain Chapter 4 enforcement rules to streamline the enforcement process. Given Chapter 4 is being completely rewritten, law firms will need to review and update these provisions when the PPSA amendments come into force,” said Alex.
CHESS securities
Importantly for anyone taking security over shares, ASX listed securities held through CHESS will be reclassified as “investment instruments” rather than “intermediated securities” under the proposed amendments.
The reclassification should make registrations easier, as security interests over all shares (whether listed or unlisted) will be registered as “investment instruments”.
What’s next?
The Government received over 40 responses on its proposed legislative reforms. The industry is now awaiting updated drafts of the PPSA amendment bill and PPS regulations.
It remains to be seen how the Government will approach the transitional arrangements should the amended PPSA be introduced to Parliament (including how existing registrations on the PPSR should be treated under the amended PPSA).
Two alternative approaches are being considered:
- A grandfathering model which will enable existing PPSA security interests that pre-date the amendments to continue to be governed by the pre-amended PPSA.
- A temporary perfection model, where all existing security interests will need to be transitioned to the new laws and new PPSR after a period of time.
- Practical Law has been carefully analysing the upcoming PPSA amendments. Ensure your practice is prepared with our comprehensive, up-to-date resources when these significant changes take effect.
The Practical Law team has collated the information, so you don’t have to. Download your copy of the Help and information note, Taking security over shares and other marketable securities.
This helpful note considers the issues with taking security over shares and other marketable securities. Specifically, taking security over “investment instruments” and “intermediated securities” under the Personal Property Securities Act 2009 (Cth).
