PPS leases – cutting the red tape

Just after its second operation birthday, the Personal Property Securities Act 2009 (Cth) (PPSA) is about to undergo its first major amendment.

The Personal Property Securities Amendment (Deregulatory Measures) Bill 2014 (Cth) (Bill) has been introduced into Federal Parliament and seeks to amend the PPSA so as to follow the Liberal mantra and “cut red tape” for small business.

PPS Lease

Section 267 of the PPSA has the effect that if a lessor with assets the subject of a PPS Lease fails to register its security interest in those assets on the Personal Property Securities Register (PPSR), the asset(s) the subject of that lease vest in the lessee in its insolvency.

Section 13 of the PPSA deems that a lease will be a "PPS Lease" where it is:

• for an indefinite term;
• for a term of more than 12 months;
• for a term of up to 12 months but that term is automatically renewable or includes options to renew and the total term of such lease might exceed 12 months; or
• a lease of serial numbered goods (such as motor vehicles, boats and aircraft) for a period of 90 days or more.

Property leased for a period of less than 90 days is not required to be registered.

The effect of section 13 of the PPSA is that companies which are in the business of leasing property, must register their interest in the leased property (to the extent that lease falls within the definition of “PPS Lease”), or risk losing their interest in that property in an insolvency event.

Changes to the PPSA

The amendments to the PPSA, as proposed in the Bill, seek to amend the definition of “PPS Lease” to remove the requirement that a lease of a serial numbered asset for a period of 90 days or more be registered on the PPSR in order to protect the lessor’s interest in that property.

The removal of that deeming provision will mean that only leases deemed to be “PPS Leases” would be those for a term of more than one year or an indefinite term.

The main impetus for the amendment is:

• to remove any confusion as a result of the complexity involved for business in determining whether a lease is within the definition of “PPS Lease”; and
• to correct any potential misunderstanding by businesses in respect of what constitutes a serial numbered good.

It is suggested that the repeal of the “90 day rule” in section 13 of the PPSA will minimise the need for small and medium hire businesses, as well as other businesses regularly engaged in the lease of serial numbered goods, to consider whether registration is warranted in respect of leases of a term of less than 12 months.

That is, leases of serial numbered goods (such as motor vehicles, boats and aircraft) of a term of more than 90 days but less than 12 months would no longer be “PPS Leases” and as such would no longer be required to be registered. 

Lavan Legal comment

The changes to the PPSA proposed in the Bill will hopefully remove any potential for confusion surrounding business operations and the leasing of goods in small and medium business.

Practically, the repeal of the 90 day rule would mean that a hire business would rely on proof of their ownership of the goods rather than registration of their security interest to avoid loss of the goods in the event of an insolvency event occurring (or if the lessee were to sell the leased goods to a third party). 

In addition, the amendments will now align with the current law in New Zealand and Canada such that to the extent that a company’s business extends into those jurisdictions, there may be ancillary legal and financial benefits.