23 March 2015

Personal Property Securities

The report on the Review of the Personal Property Securities Act 2009 (Cth) deals with legislation aimed at establishing "a single, national set of rules for secured credit using personal property".

The intention is that the rules would "provide greater certainty for Australian businesses, credit providers and consumers", reducing the cost of secured finance and to making it easier for businesses and consumers to use their assets as security.

The Report thus considers:
  • the effect of the reforms introduced by the Act; 
  • the level of awareness and understanding of the Act; 
  • the incidence and causes of non-compliance with the Act; 
  • opportunities for minimising regulatory and administrative burdens including cost; and  opportunities for further efficiencies. 
  • the scope and definitions of personal property; 
  • the desirability of introducing thresholds; 
  • the interaction of the Act with other legislation; and 
  • other relevant matters. 
The Report includes "extensive recommendations on how to improve the Act, including simplification of the Act and of the register established by the Act".

The Reviewer states
A paradigm shift in our law 
The Personal Property Securities Act 2009 (the Act) revolutionised the law and practice of secured transactions in Australia. It established an entirely new regime for the creation, legal effect and enforcement of security interests in personal property. In doing so, it replaced a number of complex and fragmented sets of rules with a single set of rules that apply to security interests in personal property. The Act did not do this by simply standardising the rules for existing legal structures. Instead, the Act took an entirely new approach to secured transactions laws, based on principles that had been developed and implemented in a number of overseas jurisdictions, most notably in the United States, Canada and New Zealand. This approach largely ignores the form that parties choose for their transaction or even who has title to the property, and instead focuses on the transaction’s commercial substance to determine whether it should be treated as a security interest. This was a radical shift in approach for Australian law. 
Effect of the reforms 
The Replacement Explanatory Memorandum for the Act stated that the purpose of the Act was to provide “more certain, consistent, simpler and cheaper arrangements for personal property securities”. The clear feedback from submissions to the review is that much still needs to be done if the Act is to achieve these goals. The Act has improved consistency in Australia’s secured transactions laws, but submissions emphasised that the Act and the Register are far too complex and that their meaning is often unclear, and that the resultant uncertainty has not allowed the Act to reach its potential. Submissions maintained that much can be done to simplify the content of the Act, and that this would make the Act much more accessible to users and easier to work with. Simplifying the Act will help it to achieve its objectives, as simpler and clearer rules can lead to more predictable outcomes. More predictable outcomes would give financiers greater confidence in the Act and in their ability to take effective security interests under it. That, in turn, would assist borrowers to use their assets as collateral, and enhance their ability to raise cost-effective finance. 
What can be done? 
Much can be done to improve the Act. The Act is significantly longer than the corresponding legislation in other jurisdictions, and while some of that additional length is attributable to constitutional or other machinery provisions, much of it flows from the very prescriptive nature of some of the drafting, and from the inclusion of additional provisions that may be of only marginal benefit. The Act has also adopted a number of concepts and policy choices from overseas models without it being clear as to what extent those concepts and policy choices were appropriate for Australian business conditions. The Act will be much more effective as a piece of Australian legislation if these concepts and policy choices can be tested against Australian operating conditions and expectations, and modified where this is needed. There is no one single step that by itself will produce a major improvement to the Act. Rather, improvement needs to come from the making of many small changes. 
Stakeholder input 
The work of the review has relied very heavily on input from stakeholders. The review sought the views of stakeholders through two rounds of submissions, and four consultation papers. In all, the review received 88 submissions and 83 responses to the consultation papers, from stakeholders such as industry organisations, individual businesses, law firms and law societies, government organisations representing business, consumer and privacy interests, and members of the academic legal community. Their views underpin the recommendations in this report. 
Recommendations for change 
The outcomes of the review as they relate to the Act and the Register are set out in Chapters 4 to 9 of this report. Those Chapters group the many issues by topic. The discussion of each issue consists of an explanation of the issue, consideration of the feedback received from stakeholders, and my recommendations in relation to it. For convenience, all the recommendations are also listed separately at the end of this report, in Annexure E. There was a strong consensus in the views of stakeholders on the great majority of issues. There were a number of issues, however, on which stakeholders were more divided, often because of differing philosophical starting points or competing policy preferences. My recommendations on those issues reflect what I believe, after careful consideration, to be the appropriate balance of the competing perspectives. I was not in a position to make a properly–informed recommendation on a small number of questions, mostly as the result of a lack of information. In those cases, I have instead recommended a path that Government could follow in order to reach an appropriate resolution of the issue. 
Implementation will be critical 
Making major changes to legislation of this complexity is itself a complex task. Care will need to be taken to ensure that the changes do not inadvertently upset existing rights, to ensure that the amended Act is internally consistent, and to ensure that the detail of the drafting is effective to respond to the concerns that it is designed to address. I make some recommendations on these matters in Chapter 10. 
A fresh education campaign 
The reforms introduced by the Act will only realise their objectives if the people that it affects are aware of it, and understand how it affects them. Government went to considerable efforts to raise awareness of the Act around the time that the Act was passed, but general awareness of the Act appears to have remained low, and the complexity and unfamiliarity of the content of the Act have meant that many do not know how to work with it. My anecdotal understanding is that there is now a higher level of awareness of the Act, especially among small businesses, but that more can still be done to ensure that businesses and consumers that are affected by the Act are aware of it. I believe that the recommendations in Chapters 4 to 9 will help to make the Act simpler and clearer, and so much easier to understand and work with. The Act will always be a complex piece of legislation, however, and its implications for businesses and consumers will not always be straight-forward. In addition to increasing public awareness of the existence of the Act, Government should also take steps to increase understanding, among both businesses and the legal community, of the detailed effects of the Act. I make some recommendations on these matters in Chapter 10 as well.