Mark Dreyfus (Isaacs, Australian Labor Party, Shadow Attorney General) Share this | Link to this | Hansard source

This bill amends the Personal Property Securities Act 2009 to extend the minimum duration of a PPS lease from more than one year to more than two years. The amendments will operate so that a lease of an indefinite term will not be a PPS lease unless and until it has run for more than two years. The effect of these amendments is that a PPS lease of more than two years is a security interest that should be registered on the PPS Register.

Labor in government introduced the Personal Property Securities Act in 2009. It was introduced to the parliament by Attorney-General Robert McClelland. The act is an important reform which provides a uniform, functional approach to personal property security law governing all transactions that create a security interest. This includes the national uniform Personal Properties Securities Register, in which security interests may be registered and searched. The Personal Properties Securities Act 2009 harmonised over 70 Commonwealth, state and territory laws, as well as the common law and the rules of equity that govern security interests in personal property. The previous laws varied in their application, according to the form of the transaction, the nature of the debtor or the jurisdiction in which the property was located—which had the potential to significantly add to transaction costs.

Other countries, notably New Zealand, Canada and the United States, had by 2009 all implemented reforms in this area. The PPS reforms were intended to have a significant impact on business and consumers enhancing Australia's position as a financial centre by enabling banks and financiers to gain greater access to international finance, which in turn would assist growth and employment in Australia. The aim of the PPS reform in relation to PPS leases was to improve the ability of individuals and businesses, particularly small to medium sized businesses, to use more of their property to secure lending. The reforms were the subject of extensive consultation and received significant support and input from stakeholders, including industry, financiers, business and the legal industry.

Labor is proud of these reforms. The PPS reforms constitute real regulatory reform that cuts red tape, lowers costs for businesses and improves productivity. In government Labor worked hard to recognise the important role that personal property securities play in the Australian economy. Labor recognised the cost, confusion and uncertainty that surrounded personal property before Labor's reforms and we wanted to alleviate that burden on small business. The Productivity Commission estimated that Labor's reforms would save $70 million a year in compliance costs. This stands in stark contrast to the current Liberal government's imagined commitment to so-called red tape removal that rests on amending legislation with minor changes like deleting commas and correcting typos or repealing hundreds of spent acts that no longer have any legal effect.

The Personal Properties Securities Act provides for the circumstances in which the lease of goods will constitute a security interest for the purposes of the act. This currently includes leases for a term of more than 12 months or indefinite leases. Previously, the act also applied to leases for 90 days or more of serial numbered goods, a category that includes motor vehicles. However, this stipulation was removed by the Personal Properties Securities Amendment (Deregulatory Measures) Act 2015, which Labor supported.

The amendments in this bill make small changes Personal Properties Securities Act but they will provide significant relief for small businesses, particularly for the short-term rental and hire industry which enter into short-term lease arrangements or indefinite-term leases. The bill responds to issues that were raised by a number of submissions to the Whittaker review in relation to the effect of the act on small business, particularly the hire and rental industry, which enter into short-term lease arrangements or indefinite-term leases. That review highlighted the challenges for small business that are created by the operation of act, including the imposition of significant administrative burdens and substantial compliance costs.

A number of recent Supreme Court decisions have also highlighted problems with the operation of the PPS Act in relation to PPS leases, whereby owners of property have lost the right to their property because their interest was not registered. The provisions of the act relating to PPS leases operate to prevent the owner's loss of property that can occur in security arrangements where the goods are in the possession of the borrower. If a borrower uses property as security for subsequent borrowings, sometimes the second lender is not made aware of the owner's existing security interest. The register of personal property securities ensures that lenders are able to identify security interests.

Recent Supreme Court decisions in New South Wales and Western Australia have interpreted the operation of the act in relation to PPS leases. If owners of property do not register their interest on the PPS Register, and a hirer uses the property as security for borrowing without the knowledge of the owner, and the hirer becomes insolvent, the liquidator has an enforceable right to possession of the property. It has raised concerns for small businesses, particularly for the hire and rental industry, that owners of property have lost the right to their property because their interest was not registered. Property owned by hire companies can be lost when a customer defaults or becomes insolvent.

The minister was required to review the operation of the Personal Properties Securities Act. The Attorney-General, Senator Brandis, launched the review he was required to undertake in April 2014. It was led by Mr Bruce Whittaker. The final report of the Whittaker review was tabled on 18 March 2015.

In response to 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, with Labor's support, so that certain categories of leases do not need to be put on the PPS Register. The Whittaker review highlights the concerns of small business which are partially addressed by this bill, including: low levels of awareness about the act leading to a failure to engage with the registration process and adverse consequences or loss of property; need for professional advice about the operation of the act due to its complexity and the costs of that advice; financial and administrative burdens of the registration and search process; and the cost of resolving disputes relating to the operation of the act. Small and family businesses that do not have the resources to meet the financial burden of the act are vulnerable to loss of property.

The final report of the Whittaker review is 542 pages of comprehensive analysis and review of the Personal Property Security Register. It contains some 394 recommendations for improving the operation of the act. This bill does not implement any of the recommendations in the final report. So let's be clear: this bill is not anything close to the comprehensive legislative reform called for by the Whittaker review. This bill is a minor tweak.

Labor is happy to support this bill if it will alleviate some of the burden currently borne by small business. But let's be clear: this is a lazy and erratic government that has no idea how to engage in proper, broad-scale legislative reform. If only this government would start thinking clearly about what it is trying to achieve and actually work towards methodically achieving some of those goals, then maybe Australians would have the kind of government that they were promised. This government is content to boast about minor tweaks instead of the bold deregulatory reform agenda that they proclaimed. Sadly, this government seems to have no reform agenda and it has no coherent plans for Australia's future. Instead we have seen an inert government that actually ran out of legislation during the first week of parliament this year.

Labor will support this small, sensible reform, but it is only one of hundreds of other sensible reform measures that this government could be bringing to this parliament. There are so many opportunities in Australia's regulatory framework to make improvements to ensure that our laws are operating effectively and are not unfairly or unnecessarily placing the burden on certain areas of society or industry. Labor would be happy to work with this government to make similar changes to a whole range of acts of parliament, but changes must be carefully considered and they must be the product of proper, thoughtful engagement with the issues and the result of consultation with those affected. I commend the bill to the House.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

It gives me great pleasure to rise this evening to speak on the Personal Property Securities Amendment (PPS Leases) Bill 2017. This fixes up an act that was introduced back in 2009. I can remember back then reading some commentary when the bill for that act was introduced by the former Rudd-Gillard-Rudd government and thinking to myself, 'How could the parliament possibly legislate something that makes so little sense for the small business community?' It was crystal clear to me at the time, from sitting outside of this place, that what was actually in that bill back in 2009 would cause problems, would have unintended consequences and would have adverse and unfair effects. But at that time there was just so much poorly thought through legislation that this just piled another bad bill on top of another bad bill.

However, I have to admit that back in 2009 the coalition, when they were in opposition, did not oppose the bill. I have to be fair to the then Attorney-General—Robert McClelland. Yes, he was mistaken on many aspects in this bill. There were some good things originally in it, but I was a bit disappointed that the coalition at that time did not pick up on the bad things. But, in their defence, there was so much confused and chaotic legislation being driven through the parliament then, often on ideological grounds, I suppose the opposition sometimes did not know where to actually start.

As it was, the concerns I had were over two issues. The first concern was with what was known as a Romalpa clause or a retention-of-title clause. This enabled a supplier, a wholesaler or a manufacturer, when they were onselling goods through the supply chain, to have in their contract of sale a retention-of-title clause. The clause was simply something they would often put at the bottom of their invoices that said, the supplier retained the title to the goods until they received payment in full. That was a fair enough term. If a supplier is supplying goods on credit, it is fair enough, if the person he is supplying to goes into insolvency or liquidation and an administrator is appointed, that he gets to retain the title of the goods that he has supplied, especially in circumstances where he can easily identify what his goods are if they have not been mixed with other goods or they have not been made fixtures in a particular property. That worked well for decades. It was a contractual term so that if a company went into liquidation the supplier could turn up and show the administrator or the liquidator the terms of the supply agreement they had. That would have had the retention-of-title clause in there, so they would have been able to take their goods back. Those simple contractual terms worked well and protected the interests of small business suppliers.

But there was a change made to this simple contractual arrangement back in 2009 that said: 'Now you have to register your retention-of-title clause at each particular sale you make with a government bureaucratic website and get it officially stamped. Otherwise, in a liquidation, what you should have retention of title to, or you thought you had retention of title to, will go to the assets of the company in receivership, which, in effect, will go to the secured creditors'—which are often the banks—'or the liquidator.' So, through those provisions, you simply had an asset transfer from the small business community to help the big end of town—the large banks and secured creditors—to, effectively, take windfall possession of goods that they had no entitlement to whatsoever.

The second concern I had with the original act was with regard to the rental and hire industry because it made it so that, if I was a business hiring my goods to another company, and I had an indeterminate term of the lease—and that sometimes may be the case because, when you lease goods or a company hires goods, you do not know how long you may want that term for; you may want it for three months, six months, 12 months, a year or two years—again, in an administration or liquidation situation, the goods that my company had hired out would all of a sudden no longer be my property. Again, that reversed years of simple common sense and a common practice in the industry. Suddenly you had to take along your lease and get it stamped and registered in a government bureaucratic form. If you did not do that, you were at risk of the administrator taking ownership of your property. This was absolutely, completely absurd.

I see the member for Moreton is speaking on this bill, which is very good. I had a look at how this legislation got through parliament the first time, when it was so obvious—

Mr Perrett interjecting—

I said that. I have acknowledged that. I wondered how it got through parliament the first time. Surely there were parliamentarians here that understood the damage that this would do. Who was on that speakers list for that bill back in 2009? The member for Moreton. He was telling us how wonderful the legislation would be for solicitors—how it would create more work for clerks. I hope that when the member for Moreton makes his contribution on this bill he will stand up and apologise to this House for how mistaken he was back in 2009.

Let's have a look at some of the damage that was done through the legislation that the member for Moreton supported last time. Let's look at a couple of cases.

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

You voted for it!

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

I hear the member for Moreton interjecting. I was not here in 2009, and I acknowledge that the coalition did not oppose the legislation, but voted for it. I say that was wrong. I have been gracious enough to say that that was incorrect. I would hope that the member for Moreton would stand up in this parliament and admit that he made a terrible error back in 2009 and got it hopelessly wrong.

Let's have a look at some of the effects of the member for Moreton's foolhardy support of that legislation. Let's look at a couple of cases. The first one is the case of OneSteel and Alleasing. The leasing equipment in that case was in the value of $23 million. An Alleasing employee, responsible for making the government registrations, failed to register the security interest—failed to fill in the bureaucratic government form—in accordance with the specific registration requirements. He used an incorrect ABN number on the registration. That $23 million worth of assets was actually lost by the company and transferred to the company in receivership. That was a windfall gain of $24 million, unfairly lost all because of this original legislation.

Another case was Power Rental Op Co versus Forge Group Power. It was only decided a month or so ago. That case involved, of all things, four mobile wind turbines that were leased by Forge Group Power from General Electric for a period in excess of 12 months. GE was regularly engaged in the business of leasing goods. Even though you would think that you would have to bolt a wind turbine to the ground, the court held that they were not fixtures and found that under the current leases, under this PPS legislation supported by the member for Moreton over there, the turbines became the property of the administrator. This was after only one month. One month had passed in which the leased goods were held by the company that was hiring them. They struck financial difficulties and had an administrator appointed. US$44 million—probably close to A$55 million—was lost: an unjust asset transfer from one company to another company; a complete windfall gain. Of course that money goes to the secured creditors, which would be the large banks, and also money to fund the liquidator's payments. It is simply a transfer from often the small end of town to the big end of town under this legislation.

This legislation does not fix the issue of the Romalpa clause. I would hope that very shortly, having fixed up this one mistake, both sides of this parliament would go back and look at this issue of going back to simply contractual terms of a Romalpa clause, not having to be something that requires a bureaucratic process that you have to go through to do it. It is extra paperwork, extra processes, completely against the interests of small business, leading to unjust, unfair outcomes.

With this legislation we are changing the minimum duration for which leases apply down from two years to one year. It was previously two years; it is now one year. More importantly, it also has the effect that leases of an indefinite term will not be deemed PPS leases unless they have run for a period of more than two years. So that enables companies to put on their lease documents that it is an indefinite period of time, and only once it gets over that two years do they need to register. I would prefer that there were no need for registration whatsoever, but at least this remedies those appalling court cases that we saw, which were little more than theft from one company to another.

The member for Isaacs, in his contribution, also talked about what else the coalition is doing to get this economy underway. In the few minutes left I would like to address some of those things. There are a couple of very important things that we need to do. Firstly, we need to get energy costs under control. We cannot do that when coal-fired power stations are continuing to be run out of town because they cannot compete with subsidised renewables, especially wind turbines.

Milton Dick (Oxley, Australian Labor Party) Share this | Link to this | Hansard source

Bring on 18C!

Mark Coulton (Parkes, Deputy-Speaker) Share this | Link to this | Hansard source

Member for Oxley, that is disorderly.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

As long as the Labor Party is mad enough to support a 50 per cent renewable energy target there will be no investment in base load coal-fired power stations. That will drive up the cost of electricity; it will make electricity more unreliable; it will cost jobs; it will drive manufacturing off shore; it will make us a poorer and poorer nation. Secondly—

Mark Coulton (Parkes, Deputy-Speaker) Share this | Link to this | Hansard source

The member for Scullin, on a point of order?

Andrew Giles (Scullin, Australian Labor Party) Share this | Link to this | Hansard source

We have given the member for Hughes some latitude, but he should confine his remarks to the bill which is before the House. He has spoken at some length about the seriousness of these matters. He should address them.

Mark Coulton (Parkes, Deputy-Speaker) Share this | Link to this | Hansard source

I listened to the member for Hughes. He was referring to the contribution of the member for Isaacs. I admit that he is a little off the centre of the debate, but I believe he is still relevant.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

That is correct. We have to allow broadness in this debate. If the member for Isaacs stands up and wants to bag the government, surely we are allowed to respond. But we know what the other side think about free speech. Just look at their—

Debate interrupted.