Carol Brown (Tasmania, Australian Labor Party, Shadow Parliamentary Secretary for Families and Payments) Share this | Link to this | Hansard source

I rise to speak to the Personal Property Securities Amendment (PPS Leases) Bill 2017 on behalf of the opposition. At the outset I indicate that the opposition will be supporting the bill. Labor introduced the Personal Property Securities Act in 2009. This historic reform provides a uniform functional approach to personal property security law governing all transactions that, in effect, create a security interest. This includes the national uniform Personal Property Securities Register in which security interests may be registered and searched. The Personal Property Securities Act 2009 harmonised over 70 Commonwealth, state and territory laws as well as the common law and rules of equity that govern security interests in personal property. The 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 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 would in turn assist growth and employment in Australia. 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 are proud of these reforms. The PPS reforms constitute real regulatory reform that cuts red tape, lowers costs for businesses and improves productivity. This stands in stark contrast to the Liberal government's imagined commitment to so-called red tape removal that involved amending legislation with minor, unnecessary changes like deleting commas and correcting typos.

The 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. 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 borrowing, 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.

As I mentioned, Labor introduced the act with bipartisan support to establish a register of personal property securities to streamline the more than 23 different state, territory and Commonwealth regimes for registers of interest in personal property and over 70 pieces of supporting legislation. The aim of the PPS reform was to improve the ability of individuals and businesses, particularly small- to medium-size businesses, to use more of their property to secure lending.

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 the possession of the property. This has raised concerns for small businesses, particularly for the hire and rental industry, whereby owners of the 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 is required to review the operation of the act. The Attorney-General, Senator Brandis, launched the review in April 2014 and it was led by Mr Bruce Whittaker—the Whittaker review. The final report was tabled on 18 March 2015. In response to problems identified by small business in relation to PPS leases during 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: low levels of awareness about the act leading to a failure to engage with the registration process and adverse consequences or loss of property, the need for professional advice about the operation of the act due to its complexity and the cost of that advice, the financial and administrative burden of the registration and search process, and the cost of resolving disputes relating to the operation of the act. In particular, some in the hire and rental industry have struggled with the operation of the act due to the imposition of significant administrative burden and substantial compliance cost as well as the desire to remain flexible in lending equipment to the construction and mining sectors.

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 bill responds to the concerns of small business, particularly the rental and hiring industry, which commonly lease goods out for short-term or indefinite arrangements to a large number of customers by limiting the type of lease that is captured by the act. However, I note that the final report of the Whittaker review stated that the concept of the PPS lease was the subject of far more comments and criticisms in submissions than any other topic, particularly from the short-term hiring industry, which were especially vehement in their criticism of the fact that their hiring activities are subject to the act.

I also note the Whittaker review did not recommend the changes in this bill which amend the one-year test to a two-year test. The review explicitly recommended that the one-year test not be changed. This was due to a concern that ownership interests would be less visible if they were not covered by the act, as well as the concern that it is often very difficult to say whether a particular lease is a security interest under the act. The one-year test adds clarity.

Further, the Whittaker review also did not recommend the changes in this bill which provide that a lease of an indefinite term will not be a PPS lease unless and until it runs for two years. It was recommended that the definition of PPS lease be amended to capture a lease of goods for an agreed term of more than one year, taking into account renewal options, or for a period of initially less than one year once the lease has in fact continued for more than one year.

The Whittaker review also recommended that the definition of a PPS lease be amended to remove all references to bailments. A reference to a bailment means that many normal commercial arrangements, which should not be regarded as leases, are caught by the act. This results in a lack of confidence and certain business activity falls within one of the exclusions in the act. That issue is not addressed by this bill.

Whilst the opposition believe some aspects of this bill could have been improved, particularly to address concerns of small business, on balance, we support the bill.

John Williams (NSW, National Party) Share this | Link to this | Hansard source

I wish to contribute to this debate on the Personal Property Securities Amendment (PPS Leases) Bill 2017 by saying that, in 2015, I had a meeting with James Oxenham from the Hire and Rental Industry Association and their legal representatives Oliver Shtein and John Elmgreen. They explained to me that the hire and rental industry was suffering badly from an unintended consequence in the PPSA and that companies were losing their property when the lessee went broke. This is because they had not properly lodged security over the equipment by not completing the required paperwork and online registration or completing it incorrectly, or not completing it in the correct time frame.

A classic case is a matter of Alleasing Pty Ltd, which lease plant equipment worth $23 million to OneSteel manufacturing. Alleasing registered an interest in the equipment on the register but included OneSteel's ABN, not their ACN. The administrators ruled that this made the registration defective and invalid and, even though Alleasing lodged a fresh registration and then went to court, it lost the case and its $23 million worth of plant and equipment.

Farmers are not immune either—this is a matter happening as I speak. Three farmers leased dairy cattle to a fourth farmer and, unfortunately, his operations failed and the liquidators moved in. Because the farmers either were not aware of the necessity to register under the PPSA or completed the paperwork outside the required time frame, they have been embattled with the bank and the liquidators as they try to get back at least some of their cattle.

It has been a long road to get here. I raised this 18 months ago in the joint party room when these people came to me. The current exemption period is one year, and the industry want that extended to three years. A big part of this was the banks, because they are the ones who appoint receivers. But, even if they do not appoint, any assets lost to the insolvent company under the PPSA usually end up in the hands of the bank.

In the Forge Group liquidation, ANZ successfully claimed turbines owned by another company worth more than $50 million. So I got the two parties together—the hire companies and the banks—and a period of lease, which can be maintained free of PPSA risk regardless of paperwork, was agreed on for the two-year period.

This legislation will amend the act's definition of a 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 objectives. Leases with an indefinite term will require registration only once they have exceeded two years, and the length of a fixed-term lease will require registration only if it is for a term of more than two years. This will fix what I call 'legalised theft'. This is a good outcome for the hire and rental industry, which has an annual turnover of $6.6 billion and employs more than 18,000 people. It is a win for common sense.

I would like to thank the Attorney-General, Senator Brandis, for bringing this legislation forward and also his adviser Jules Moxon, who is sitting here in the chamber—good on you, Jules. He worked with the department to develop the changes needed. I think Jules would refer to me as 'Three Horses' because, every time I went over to see him, I was simply: nag, nag, nag. We have got there, and I thank you very much, Jules. I commend the bill.

Christopher Back (WA, Liberal Party) Share this | Link to this | Hansard source

I did not understand that reference, Senator Williams.

Scott Ryan (Victoria, Liberal Party, Special Minister of State) Share this | Link to this | Hansard source

I commend the bill to the Senate.

Christopher Back (WA, Liberal Party) Share this | Link to this | Hansard source

The question is that the bill now be read a second time. Those of that opinion say aye; those against say 'neigh'!

Question agreed to.

Bill read a second time.