The Review of the Personal Property Securities Act has recommended 394 changes to the controversial legislation, which is not meeting its goal of providing "more certain, consistent, simpler and cheaper arrangements for personal property securities."
The review said the law, which came into effect in 2012, had improved consistency in secured transaction law but it acknowledged that the majority of submissions it had received emphasised that both the law and the operation of the Personal Property Securities Register were too complex and their meaning often unclear.
The review was conducted by Ashurst partner Bruce Whittaker, who accepted "clear feedback" from submissions that much needed to be done for the law to achieve its goals.
Whittaker said improvements would come from making many small changes. Most of the recommendations were technical and highly detailed, including clarification of definitions, changes to the layout of the Register, simplifying the language and making it more familiar to Australian users.
The review calls for simplification of such core concepts as intermediated securities, collateral and security interests.
A recommendation to improve the functionality of the Register is to enable a registration to be made against a number of collateral classes at the same time.
It recommends that the Government consider whether such areas as interests in life insurance policies, water rights and fixtures should be covered by the law. One theme in the review is that the law would work better if it were subject to fewer exclusions.
One of the most contentious areas in the legislation covers the treatment of longer-term leases. According to the review the issue is that "a good deal of leasing activity relates to operating leasing, where a company wants to acquire the use of an asset for a period of time but then return it to the lessor at the end of that period. A lessor might ask why its commercial arrangements should be caught up in legislation that deals with secured finance."
The review recommended that "the Act continue to apply to some types of longer-term leases, whether or not they operate in substance for payment or performance of an obligation."
The review points out that the PPSA took an entirely new approach to secured transaction law, largely ignoring the form that parties choose for their transaction and instead focusing on the transaction's commercial substance to determine whether it should be treated as a security interest.
Under the PPSA, a security interest means an interest in personal property provided for by a transaction that secures payment or performance of an obligation. That interest might be provided by a fixed charge, a floating charge, a trust receipt, a chattel mortgage, a conditional sale agreement, a hire purchase agreement, a consignment or a lease.
The Act also created the PPSR, which consolidated more than 40 commonwealth, state and territory registers used to provide notification to third parties of interest in personal property.
Whitaker said the Government borrowed heavily from other jurisdictions when it drafted the PPSA and this was part of the reason for its complexity. A number of his recommendations are aimed at adapting the law and its terminology to local conditions.
One of the aims of the PPSA was to increase the range of property available to secure finance and, in this way, assist borrowers to use their assets as collateral enhance their ability to raise cost-effective finance.
"Simpler and clearer rules would give financiers greater confidence in the law and their ability to take effective security interests," the review said.