Michael Keenan (Stirling, Liberal Party, Minister for Justice) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

The Personal Property Securities Amendment (PPS Leases) Bill 2017 progresses urgently needed reform of the Personal Property Securities Act 2009 to minimise the impact of the PPS regime particularly on small and medium Australian businesses.

The Personal Property Securities Act was introduced with bipartisan support in 2009. A cornerstone of this reform was the establishment of the Personal Property Securities Register. This introduced a single national system for the creation, registration, priority and enforcement of security interests in personal property.

The PPS regime has increased the range of property available to secure finance, especially for small businesses, while providing greater confidence to lenders and securing their interests.

The PPS regime has replaced 23 state, territory and Commonwealth property and securities registers and over 70 pieces of supporting legislation.

This alone involved the migration of 4.7 million registrations to the new, national Personal Property Securities Register. Reform on this scale is not without its challenges.

Ongoing assessment and adjustment where necessary is important to ensure that the PPS system meets the needs of the Australian marketplace.

In consultation with Australian businesses and particularly the hire and rental industry, it became clear that although the PPS Act was an important initiative, it has created several challenges for small business in particular. These include the imposition of significant administrative burden and substantial compliance costs, which does need to be addressed.

Small and family businesses which do not have the resources to meet this significant burden are vulnerable to the risk of losing critical business assets. For example, under the Act as it stands, if a hire business fails to register a PPS lease (or registers incorrectly) and the lessee becomes insolvent while in possession of the goods, the goods vest in the insolvent estate of the lessee.

While this arrangement is important to protect creditors and ensure that notice of a security interest is made available to the prospective lenders of purchasers, in the small business context and especially for the equipment hire industry, the combination of this administrative burden and the risk of losing key business assets, creates an imminent need for reform.

This is why the government proposes to adjust the rules under the framework which deem certain leases to be security interests for the purposes of the PPS Act. These include leases of goods for a term of more than 12 months or for an indefinite term.

Since its commencement, it has become clear that these deeming provisions have created a disproportionate risk to small business in the short term hire and rental sector. Many Australian businesses which lease goods to customers for short periods of time permit their customers to use the goods for as long as they need them. It often does not make sense for a hire business to insist on fixed terms for the lease of a chain saw or cement mixer, for example. If the customer needs the goods for an extra day or a week, the lessor needs the flexibility to accommodate this without an onerous administrative burden.

The Bill will amend the Act's definition of PPS Lease to ensure that it captures only leases which are long enough to necessitate registration on the PPS Register to meet the Act's policy objectives. Leases with an indefinite term will only require registration once they have exceeded two years in length. Similarly, fixed term leases will only require registration if they are for a term of more than two years.

The framework will continue to appropriately capture some longer term, high value hire industry leases by not imposing a blanket exemption on the whole of the industry. Adjusting the PPS lease time frame will lift the burden on the hire and rental industry and importantly have a minimal impact on the operation of the rest of the PPS framework.

The regulatory burden imposed on the industry by the PPS Act in its current form is more than is necessary for the achievement of effective and certain secured lending against personal property in Australia. It does not make sense for a lease which runs for three days instead of two to require registration on the PPS Register. Businesses for which high volumes of short but indefinite term leases are central to their business model often struggle to meet the administrative burden imposed by the Act.

This measure will provide relief to industries covered by the PPS Act and, in particular, the hire and rental industry, an important industry with a total turnover of around $6.6 billion that employs over 18,000 Australians and provides essential support to the building and construction sectors. It is expected to reduce the number of registrations that may need to be made and free business using these types of leases from the risks associated with absent or incorrect registrations.

Finally, on behalf of the government, I wish to extend thanks to our state and territory counterparts for their support in developing this measure. The PPS regime is underpinned by a referral of powers from the states and the reform process is governed by an intergovernmental agreement which requires that all reforms must be assented to by state and territory governments prior to introduction. Without the support and cooperation of state and territory Attorneys-General and ministers for justice, reform to this important area of economic regulation would not have been possible.

Debate adjourned.