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Personal Prope rty Securities Act 2009
Comments and Responses – to 30 September 2009
Comments & Reponses Tables – All
Version 6: 10th March 2010
The Table below contains the comments on Personal Property Securities reform made to the Legal and Constitutional Affairs Committee Inquiry
into Personal Property Securities Bill 2009, those further comments on the PPS reform forwarded to the Department by the 30th September 2009
and the Department‘s responses to those comments. These Departmental responses take into account the Personal Property Securities
(Consequential Amendments) Act 2009 and the Personal Property Securities (Corporations and Other Amendments) Bill.
The Table is broken down into Section 1 where comments which relate to specific sections or parts of the PPS Act are listed, Section 2 where
comments which relate to various PPS topics are listed alphabetically and Section 3 where comments relating to other legislation are listed.
Contents Page
Table 1 – Comments and Responses – All 2
Section 1 – Comments & Responses by Section & Part of the PPS Act 2
Section 2 – Comments & Responses by further topics – Alphabetical 107
Section 3 – Comments & Responses - Consequential Amendments - Corporations Act & Other Legislation 124
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Responses to comments recei ved on
Personal Property Securities Bill 2009 to 30 September 2009
Table – Comments and Responses General
Section/Issues Sub no. Submi tter Issue AGD Comment
Section 1 – Comments & Responses by Section & Part of the PPS Act
To call the Act 'Securit ies' The short title of the corresponding New Zealand leg islation is also ‗Personal Property
in the plural could be Securities‘.
inaccurate and misleading.
It is about 'security
interests', as the definitions
clauses in the Bill testify.
The plural 'securities' is of
1 AG7 David Bro wn
course used for an entirely
different meaning, shares
etc. e.g. in the
Corporations Act, so it is
not clear why you have
chosen to use the plural
here.
Item 1 of Schedule 4 o f the Personal Property Securities (Consequential Amendments)
Act 2009 extends the application of the Act to investment entitlements.
Australian Need to include The substantive rules concerning investment entitlements included in the Act were
6 21 Financial Markets investment entitlement in developed having regard to work sponsored by UNIDROIT to develop a convention on
Association the scope of the bill intermediated securities. The UNIDROIT Convention on Substantive Rules for
Intermediated Securit ies, known as the ‗Geneva Securities Convention‘, was adopted in
Geneva, Swit zerland on 9 October 2009. For fu rther info rmation see
http://www.unidro it.org/english/conventions/2009intermediatedsecurities/main.htm. The
Depart ment will consider whether the Act should be amended to harmonise its effect with
Ve rsion 6: 10 th March 2010 2 of 131
Responses to comments recei ved on
Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
the substantive rules in the convention concerning security interests.
6 The term investment Item 1 of Schedule 4 o f the Personal Property Securities (Consequential Amendments)
entitlement is used in a Act 2009 extends the application of the Act to investment entitlements.
number of provisions
throughout the Bill
notwithstanding clause 6
indicates investment
entitlements are not
covered by the Bill.
Clause 6(1) specifically
provides that the Act
applies to security interests
in 'goods' or 'financial
property'. The terms
AG1 DLA Ph illips Fo x 'goods' and 'financial
property' are defined in
such a way as to exclude
investment entitlements.
Notwithstanding this, there
are various provisions of
the Act which deal with
investment entitlements
(for examp le clauses 15,
21(2), 26 and 49). We do
not understand why there
are provisions in the Act
which relate to investment
entitlements given that
clause 6(1) indicates that
the Act does not apply to
Ve rsion 6: 10 th March 2010 3 of 131
Responses to comments recei ved on
Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
such forms of property.
Item 4 of Schedule 2 o f the Personal Property Securit ies (Corporat ions and Other
The reference to
Amend ments) Bill 2010 amends paragraph 6(2)(c) such that it refers to the interest of a
"intangible property"
transferor. This would achieve the same policy effect but with more accuracy.
6(2)(c) AG2 Clayton Utz should be replaced with a
reference to the "security
interest".
Combination of accounts. Item 3 of Schedule 4 o f the Personal Property Securities (Consequential Amendments)
Please clarify that Act 2009 clarifies that in paragraph 8(1)(d) ‗accounts‘ has its general law meaning and not
Co mbined four "accounts" in this context that defined in section 10.
8(1)(d) AG 7
law firms has its general law
mean ing, not the defined
mean ing in clause 10.
Clarification of The Depart ment will consider this matter in the course of its work on regulations to be
Australian extinguishment of made under paragraph 8(1)(l) of the Personal Property Securities Act 2009 (‗the Act‘).
8(1)(f) 18 Securitisation beneficial interests of a
Foru m transferee back to a
transferor.
Mortgage backed The Depart ment will consider this matter in the course of its work on regulations to be
8(1)(f)(ii) 6 Clayton Utz securitisations should be made under subsection 8(3) of the Act.
included in the bill
Interaction of PPS
The October 2009 paper on Regulations to be made under the Act invites stakeholders to
register and Torrens tile
provide details of the regulations that could be made under paragraph°8(1)(j) and
register. Clarification is
subsection 8(3) of the Act addressing this issue.
Co mbined four required of the relationship
8(1)(f)(ii) AG 7
law firms between:
transfers of payments
derived fro m land
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Responses to comments recei ved on
Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
where the transfer
does not transfer the
transferor‘s interest in
the land (eg transfer of
lease payments); and
transfers of interests
in land which include
payments derived
fro m land.
As currently drafted we
believe there is potential
for significant conflict
between the application of
the Bill to assignments or
rights to payment
connected with land and
the Torrens system.
8(1)(f)(vi) and In each of these clauses, Paragraphs 8(1)(f)(vi) and (vii) reflect the intended policy intent.
8(1)(f)(vii) there is a reference to
assignments of accounts Paragraph 8(1)(f)(v i) corresponds to paragraph 23(e)(v iii) of the New Zealand PPS Act
being made "solely" for a and paragraph 4(h) of the Saskatchewan PPS Act.
particular purpose. This is
AG2 Clayton Utz too prescriptive. It should
be sufficient if the primary
purpose of the assignment
is the relevant purpose.
For examp le, as those
clauses are currently
drafted, where assignment
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Responses to comments recei ved on
Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
is made to a third party
and the third party is
entitled to receive some
share of the proceeds of
the account following that
third party taking action to
collect it, this arrangement
would not fall within the
exclusions provided for in
these clauses.
Scope of "trust-back" Item 10 o f Schedule 2 of the Personal Property Securities (Corporations and Other
exclusion. As the term Amend ments) Bill 2010 amends subparagraph 8(1)(f)(x) to reinstate the effect this section
"account" is now more had when an account was defined to be a monetary obligation.
limited, we reco mmend
Co mbined four that this clause refer
8(1)(f)(x) AG 7
law firms instead to an assignment of
the beneficial interest in a
"monetary obligation" (the
term used, for examp le, in
clause 14(2)(b)).
We understand that it is The Explanatory Memorandum to the PPS Act has been amended to clarify and display a
intended to exclude an clear legislative intention that ‗irrigation rights‘ are excluded fro m the operation of the
―irrigation right‖ as Act.
defined in the Water Act
2007 (Cth), being "a right
8(1)(i) AG3 Deacons that a person has against
an irrigation
infrastructure operator to
receive water" (that is not
a ―water access right‖ or a
‖water delivery right‖),
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Responses to comments recei ved on
Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
fro m the operation of the
PPSB. Ho wever, it is
unclear whether irrigation
rights are within the
mean ing of subparagraph
8(1)(i) of the PPSB.
We recommend that
subparagraph 8(1)(i) of the
PPSB be amended so that
irrigation rights are clearly
excluded fro m the
operation of the PPSB. In
addition, we reco mmend
that the Explanatory
Memorandu m to the PPSB
be amended to note that
irrigation rights are
excluded fro m the
operation of the PPSB.
The words "(no matter The inclusion of the words ‗(no matter whether the provision remains in force)‘ reflects
whether the provision the intended policy outcome. Applying the Act to security interests created before it
remains in force)" should begins to apply to that kind of security interest raises complex transitional issues.
be deleted fro m clause
8(1)(k). If a provision that While the Act includes transitional provisions for security interests that exist at the
8(1)(k) AG2 Clayton Utz a statutory right is not to registration commencement time, it would not be practical for the Act to include similar
be personal property for arrangements when the application of the Act to an interest changes because of paragraph
the purposes of the 8(1)(k).
legislation is repealed,
indicating a statutory
intention that the PPS
legislation is to apply, that
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Responses to comments recei ved on
Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
legislative intention should
be given effect to, fro m the
time of the repeal.
The Depart ment has noted this comment. The existing definit ion provides greater
certainty for reg istrants. The Depart ment notes that in other contexts the Act refers to
Australian
Definition of consumer personal property that is intended to be used predominantly for personal, do mestic or
10 15 Privacy
property. household purposes. The Act reinforces this approach in the amend ments proposed by
Foundation
Items 11 and 49 of Schedule 4 of the Personal Property Securities (Consequential
Amendments) Act 2009.
Consumer property; Holding an A BN p rovides an objective test for whether an individual is carry ing on a
Co mbined four reference to businesses business.
10 17
law firms should include those
without an ABN.
This is a drafting matter. The Act was amended to its present form in light of co mments
made by the Co mmittee at in its first report on the Act (see Recommendation 1, 3rd bullet
point). The Act provides ‗goods means personal property that is tangible property,
10 6 Clayton Utz Definition of goods. including …‘. The version of the Act previously consider by the Committee provided
‗tangible property means goods, including …‘. The definit ion of ‗goods‘ in the present
version has the same mean ing as the definition of ‗tangible property‘ in the earlier
version.
Definition of "grantor". The corresponding provision in the New Zealand PPS Act refers to ‗the person who owns
We suggest that the words or has other rights in the collateral‘ (see s ection 16, defin ition of ‗debtor‘, paragraph
"owns the personal (vi)(A)).
Co mbined four property, or" be deleted
10 AG 7
law firms fro m the start of paragraph The corresponding provision in the Saskatchewan PPS Act refers to ‗the person who has
(a) of this definit ion. an interest in the collateral‘ (see subsection 2(1) & paragraph (m)(v i)(A)).
These words are redundant
and could cause confusion The Act is based on the NZ form of words.
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
– a full ownership interest
Item 17 o f Schedule 2 of the Personal Property Securities (Corporations and Other
would be covered by the
Amend ments) Bill 2010 amends the definit ion of ‗grantor‘ by o mitting the reference to
reference to ‗interest‘ in
ownership of personal property as distinct from an ‗interest‘ in the property. The
the following wo rds.
reference to ownership is redundant and could cause confusion because the reference to
an ‗interest‘ in the property also includes a full ownership interest.
Insolvency The terms ‗bankruptcy‘ and ‗insolvency‘ are defined by reference to section 51 of the
Definition of 'insolvency'
10 10 Practit ioners Constitution to ensure that the provisions in the Act that use the terms are within the
and 'bankruptcy'.
Australia Co mmonwealth‘s constitutional powers.
Definition of "chattel The Depart ment considers that the Act achieves the intended policy effect. Writings that
paper". Should ", or lease evidence a monetary obligation and a lease will be chattel paper. This is consistent with
of," be deleted fro m line 1 the definition in the New Zealand and Saskatchewan PPS Acts.
Co mbined four
10 AG 7 of paragraph (a) of this
law firms
definit ion? If not, every
lease will be chattel paper
– is this intended?
Definition of purchase This is a drafting matter that does not affect the Act‘s legal effect.
price and value re credit
10 19 Mr Dav id Turner
charges and interest
payable is confusing.
Clarify that the definit ion The Depart ment considers that the Act achieves the intended policy effect.
of license includes a
Independent Film
partial assignment of An assignment of copyright (whether partial or co mp lete) would not be a security interest.
10 25 & Telev ision
intellectual property However, a security interest would include copyright that secures payment or
Alliance
operating like an exclusive performance of an obligation (fo r examp le, an obligation to pay the purchase price for the
license. copyright). In this respect, the Act provides the same treat ment for copyright as other
Ve rsion 6: 10 th March 2010 9 of 131
Responses to comments recei ved on
Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
kinds of personal property.
We agree that most The Act employs the definition of consumer property to provide registrants with certainty
substantive protections for concerning when the name and date of birth of an individual grantor must be included in
consumers in the Bill are the registration and when the 7 year maximu m reg istration period applies.
not affected by the
definit ion of ‗consumer
property‘, which we Item 84 o f Schedule 2 of the Personal Property Securities (Corporations and Other
Amend ments) Bill 2010 amends subsection 178(3) by replacing the reference to
support. However, this
‗consumer property‘ with a test of whether the grantor uses, or intends to use at the time
does not change the fact
that three important the security interest attaches, collateral predo minantly for personal, do mestic or household
purposes. The effect is to give equal protection to consumers who use or intend
consumer protections are
occasionally to use collateral for business purposes.
dependent on the collateral
being registered as
Consumer Action
10 AG5 ‗consumer property‘,
Law Centre
being: the crit ical privacy
protections preventing
inappropriate registration
of grantor details; the more
appropriate maximu m end
time fo r the registration of
7 years rather than 25
years or indefinite; and the
prohibition on the secured
party demanding payment
for co mpliance with an
amend ment demand.
The current definit ion of
‗consumer property‘ may
provide certainty for
security holders but the
purpose of having a
Ve rsion 6: 10 th March 2010 10 of 131
Responses to comments recei ved on
Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
separate collateral
category of consumer
property is supposed to be
to provide additional
protections for grantors of
this sort of property
(Exp lanatory
Memorandu m §5.33).
Thus, the success of the
definit ion should be
judged against whether it
delivers this protection,
not whether it is easier for
security holders to
manage. At present, even
if co llateral is used
overwhelmingly by an
individual for personal
purposes, the individual
will not have access to the
intended protections if the
collateral is used to even
the tiniest degree in
carrying on a business
enterprise. Either the
definit ion of ‗consumer
property‘ should be
amended to align with the
other consumer protections
in the Bill by stating that it
means personal property
held by an individual that
is used predominantly for
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Responses to comments recei ved on
Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
personal, do mestic or
household purposes; or the
three protections
dependent on registration
as consumer property
should be redrafted to
apply where personal
property is used
predominantly for
personal, do mestic or
household purposes.
The exa mple given in the The Depart ment considers that the example given under the definition of ‗account‘ is
note under the definition correct. It notes that the same examp le is used in relation to similar words appearing in
of "account" is incorrect. paragraph 340(5)(a), but not in relat ion to the words in paragraph 81(b)(ii) (which the
We understand that the Depart ment considers are materially different).
defined term is to be
restricted to accounts The definit ion of account includes the following words: ‗a monetary obligation that arises
which are in the nature of fro m … granting a right, or provid ing services, in the ordinary course of a business of
accounts receivable or granting rights or providing services of that kind (whether or not the account debtor is the
10 book debts at general law. person to whom the right is granted or the services are provided)‘
AG2 Clayton Utz It is assumed that the When John Smith uses his credit card to buy stationery at a newsagent, a monetary
Definition of
"account" reference to "credit card obligation arises in the form of the debt owed by John Smith to the credit card provider.
receivable" in the examp le The monetary obligation arises in the ordinary course of the credit card provider‘s
is a reference to the business of providing financial services to its customers (such as John Smith). The
amount owing by the amount owed by John Smith to the credit card provider is therefore an account for the
holder of a cred it card to purposes of the Act.
the person that provides
the credit card, though this Similarly, the amount owed by the credit card provider to the newsagent arises in the
is not clear fro m the ordinary course of the credit card provider‘s business of providing financial services to its
wording used in the customers (such as the newsagent). The amount owed by the credit card pro vider to the
example. For example, if
Ve rsion 6: 10 th March 2010 12 of 131
Responses to comments recei ved on
Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
John Smith used his Visa newsagent is therefore an account for the purposes of Act.
card to buy stationary at a
news agent, the reference Paragraph 81(b)(ii) exp ressly excludes ‗financial services‘, and so excludes the amount
to "credit card receivable" owed by John Smith to the credit card provider, and by the credit card provider to the
would be to the amount newsagent.
owing by John Smith to
Visa, not the news agent.
This is not in the nature of
a book debt or account
receivable.
Therefore the examp le
should be removed. If it is
included then there will be
confusion as to whether
other types of financing
products are included in
the definition, for example,
loans. This is clearly not
intended.
The Depart ment considers that this matter raises a broader question concerning the policy
rationale fo r allo wing security interests taken in an ADI account to be perfected by
control. The Depart ment notes that submissions to the Senate Co mmittee on Legal and
Constitutional Affairs have expressed different views on whether it should be possible to
Provisions relating to ADI
perfect a security interest in an account by control.
Co mbined four accounts should extend to
10 17
law firms accounts with other
The Depart ment has discussed this question with experts in Canada and the USA.
financial institutions.
It notes that in Canada it is not possible to perfect a security interest in an ADI account by
control, but that this is possible in the USA. However, in the USA it is not possible to
perfect by registration a security interest in an account held with an ADI.
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
The Depart ment considers that allowing an ADI to take a security interest in accounts
held with the ADI supports the prudential regulation of A DI‘s.
However, the Depart ment will consider whether a person who has taken a security interest
in an ADI account, who is not the ADI with who m the ADI account is held, should be
able to perfect the security interest by control.
Given that it is likely that The Depart ment will consider whether the definition of ‗ADI account‘ can be simp lified.
the definition of "protected
account" under the The Act reflects the intended policy outcome. The definition is consistent with the
Banking Act 1959 may corresponding definitions in the New Zealand and Saskatchewan PPS legislat ion.
change from t ime to t ime
10
(in light of the underlying
purpose for which that
Definition of
definit ion is used in the
"ADI account"
Banking Act), it would be
AG2 Clayton Utz
preferable to have a
separate definition of ADI
AG2 Clayton Utz account in the PPS
10 legislation that would
continue to apply,
Definition of irrespective of changes to
"advance" the Banking Act.
Paragraph (a) should also
refer to the performance of
an obligation.
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Responses to comments recei ved on
Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
In paragraph (b) the
references to "the
advance" should be
replaced with references to
any type of transaction
referred to in
paragraph°(a).
Using the defined term This is a drafting matter that does not affect the legal effect of the Act.
"goods" (which is a narro w
concept) to mean any type The Act was changed from ‗tangible property‘ to ‗goods‘ in response to a
of tangible property, wh ich recommendation by the Senate Committee on Legal and Constitu tional Affairs.
extends far beyond goods,
is inaccurate and is likely The Depart ment has noted the comments concerning Co mmissioner of Inland Revenue v
to cause confusion and Northshore Taverns Ltd (in liquidation) [2009] NZCCLR 5. It notes that the PPS Act
problems with the does not use the expression ‗accounts receivable‘ as it is defined in the New Zealand
interpretation and legislation.
application of the
10 legislation.
AG2 Clayton Utz
Definition of We also draw your
"goods" attention to the case of
Co mmissioner of Inland
Revenue v Northshore
Taverns Ltd (in
liquidation) [2009]
NZCCLR 5 handed down
by the New Zealand High
Court on 27 August 2008.
In that case the New
Zealand High Court read
down the broad meaning
Ve rsion 6: 10 th March 2010 15 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
given to "account
receivable" to include only
intangibles that at general
law would be considered
to be accounts receivable.
This narrow interpretation
was adopted
notwithstanding that the
definit ion of that term in
the New Zealand PPS
legislation is much
broader. There is therefore
ongoing confusion as to
the scope of the meaning
of that defined term in
New Zealand.
Intellectual property: The Depart ment considers that extending the definit ions in the way proposed has merit on
Co mbined four should extend to forms of a conceptual or in-principle level. However, it would add additional co mplexity to the
10 17
law firms property under general Act, and raise difficult issues about which rights should be counted as intellectual
law. property.
Exp ressions in the The Depart ment considers that the treatment of promissory notes in the context of the
definit ion of "investment definit ion of ‗investment instrument‘ is not unintended.
Co mbined four instrument" should be
10 AG 7 defined without relying on The Depart ment notes that the definition of ―investment instrument‖ specifically excludes
law firms
particular Corporat ions a negotiable instrument (see para (n) of the defin ition of ―investment instrument‖, and
Definition of Act definitions. Ho w negotiable instrument is defined to include a pro missory note. It follows that promissory
"investment particular instruments are notes are carved out of the definition of investment instrument, regardless of the value of
instrument" AG2 categorised under the PPS the value of the promissory note, and regardless of whether promissory notes are also
Clayton Utz
legislation should not be debentures for the purposes of the Corporations Act 2001.
affected by how these
instruments are
Ve rsion 6: 10 th March 2010 16 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
categorised under
Australian corporations
legislation.
Reliance on particular
Corporations Act
definit ions may have
unintended consequences.
For examp le, the definit ion
of "investment instrument"
refers to debentures within
the meaning of the
Corporations Act. The
Corporations Act
definit ion excludes
(amongst other
instruments) promissory
notes having a face value
of at least $50,000. Under
the Corporations
Legislat ion Amend ment
(Financial Serv ices
Modernisation) Bill 2009
it is proposed that the
definit ion of debenture in
the Corporations Act will
be amended to include
such promissory notes.
The reasons for the initial
exclusion of such
promissory notes, and the
proposed inclusion of
those notes, are unrelated
Ve rsion 6: 10 th March 2010 17 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
to the proposed PPS
regime.
The reference in paragraph The Act reflects the preferred policy outcome. It is not intended that a negotiable
(e) to a letter of credit that instrument would include a letter of cred it that states that it must be presented on
must be presented on requiring the performance of an obligation (other than making a payment).
10
claiming pay ment should
also include presentation
Definition of AG2 Clayton Utz
to claim performance to
"negotiable
ensure consistency with
instrument"
the other provisions of the
legislation dealing with
letters of credit.
Definition of "negotiable Item 25 o f Schedule 2 of the Personal Property Securities (Corporations and Other
instrument". Clauses Amend ments) Bill 2010 amends section 10 to extend the defin ition of negotiable
24(4) and 29 indicate that instrument to take into account work done by UNCITRA L. The proposed extended
it should be possible for definit ion of negotiability is consistent with the approach taken by the UNCITRA L
the purposes of the Bill to Legislat ive Gu ide on Secured Transactions. It means that ‗dematerialised securities‘ and
have a negotiable other interests that are not evidenced by a certificate, including instruments that are
instrument that is evidenced by an electronic record, will still fall within the definit ion. The effect of this
Co mbined four evidenced by an electronic extension will be that electronic negotiability will be possible.
law firms record, rather than a
10 AG 7 certificate. Is this intended
to cover interests such as
dematerialised securities in
Austraclear? If so, it is
difficult to see which
category of the definition
of "negotiable instrument"
would capture
dematerialised securities –
even paragraph (d), as it
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
contemplates that there be
a writing that is of a kind
that can be transferred by
"delivery". Can th is be
clarified?
Definition of "new value". The Depart ment notes that this issue is addressed in Item 26 of Schedule 2 of the Personal
We suggest that the words Property Securit ies (Corporations and Other Amend ments) Bill 2010. This item amends
"owed to the person the definition of new value with the qualification owed to the person providing the value.
providing the value" be The effect of this amend ment is that new value would not include the refinancing of a loan
added at the end of this fro m an existing lender. New value would continue to include any financing provided by
definit ion. Otherwise, a a lender to a borrower in order to refinance an existing loan fro m another lender.
Co mbined four lender who provides
law firms financing to a borrower in
10 AG 7
order to refinance an
existing loan fro m another
lender would not be
providing "new value",
even though the value is
clearly "new" fro m the
perspective of the
incoming lender.
The definit ion of ‗security interest‘ corresponds to the definitions used in the New
Zealand and Saskatchewan legislation. The breadth of the definition is required in order
The definit ion of security
to implement an economic or functional approach to security interests. The Act
interest is too broad,
represents a departure from ‗[t]he traditional Anglo-Australian approach … to determine
Associated Alloys Case
12 26 The Victorian Bar the character of a transaction by reference to it legal nature, not its economic effect‘
trust arrangements should
(submission, paragraph 13). It rejects the view proposed by the Victorian Bar that ‗[a]s a
be excluded fro m the
matter o f policy the Act should confine its operation to transactions where the debtor has
operation of the Act
beneficial ownership or has an opportunity under the security agreement to acquire it‘
(submission, paragraph 14).
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Section/Issues Sub no. Submi tter Issue AGD Comment
The Depart ment cannot comment on the observation that ‗[w]e understand that the view
in New Zealand is that leases would not be regarded as security interest under their
Confuses position in
Co mbined four equivalent to subsections 12(1) and (2), despite the express reference in their equivalent in
12(2) 17 respect of leases as
law firms subsection 12(3).‘ Nevertheless, the Department considers that paragraph°12(2)(i) makes
security interests
it clear that a security interest includes a lease of goods (whether or not a PPS lease) that,
in substance, secures payment or performance of an obligation.
12(2)(1) Inclusion of flawed assets Set off is listed in subsection 8(2) as an interest to which the PPS Act will not apply.
is inconsistent with However, the exception in section 80 is a specific exclusion to this.
provision relating to
set-off. A transaction that includes a flawed asset that, in substance, secures payment or
performance of an obligation would be a security interest under the Act. The Depart ment
Set-off is expressly is not aware of any policy justification for excluding fro m security interests a flawed asset
excluded fro m the that meets this criterion. It notes that the approach taken in relation to flawed assets by
operation of the Act. subsection 12(2) is consistent with the both the New Zealand and Saskatchewan PPS
Clause 8(2) (at item 2) legislation.
provides that
notwithstanding this, The fact that a flawed asset may later be set off against a liability does not result in any
clause 80 of the Act inconsistency between paragraphs 12(2)(l) and 8(1)(d).
AG1 DLA Ph illips Fo x applies. Clause 80
provides that the rights of
the transferee of an
account are subject to the
terms of the contract
between the account
debtor and the transferor.
If the account terms
provide that moneys in the
account cannot be paid
until all moneys owing to
the account debtor are
satisfied, clause 80
Ve rsion 6: 10 th March 2010 20 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
acknowledges the validity
of the incorporation of
such terms wh ich would
make the account a flawed
asset. Accordingly, to
include flawed assets when
set-off (including
associated flawed asset
provisions) are
acknowledged as being
excluded, is inconsistent.
An interest in a flawed asset provided for by a transaction that, in substance, secures
Co mbined four payment or performance of an obligation would be a security interest under the Act.
17
law firms;
Should not treat flawed The Depart ment is not aware of any policy justification for excluding interests in flawed
12(2)(l)
Australian assets as security interests. assets from the definit ion of security interest.
Financial Markets
21
Association It notes that the approach taken in relat ion to flawed assets by subsection 12(2) is
consistent with the both the New Zealand and Saskatchewan PPS legislation.
Querying why a transferee Paragraph 12(3)(a) is intended to ensure that the same outcome is achieved by a security
of an unsecured monetary interest taken in an account and a transfer of an account: as they provide economically
12(3) 13 DLA Ph illips Fo x
interest is taken to have a equivalent outcomes.
security interest.
An amend ment or The Depart ment will consider whether a regulation should be made under paragraph
Co mbined four regulation should be 12(5)(b) to the effect that, for the avoidance of doubt, a novation of a monetary obligation
12(3) AG 7
law firms passed under this clause is not a security interest.
which provides that, for
Ve rsion 6: 10 th March 2010 21 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
the avoidance of doubt,
novations of accounts are
not security interests for
the purposes of clause
12(3)(a). This will ensure
that novations of loans and
other debts arising fro m
financial services are not
deemed security interests.
6 Clayton Utz; The Depart ment considers that the Act allows an ADI to take a security interest in an ADI
account held with it (see section 75): but agrees that this could be made clearer.
17 Co mbined four
Does not apply to ADI –
12(4) law firms;
suggests amending to fix.
Queensland Law
23 Society
The Act‘s uses the term ‗consumer property‘ princ ipally in the context of the reg istration
Amend defin ition of provisions. The requirement that consumer property be used exclusively for personal,
consumer property to domestic or household use enhances certainty for registrants about whether the collateral
Consumer Action
13 5 ensure protections should be described as ‗consumer property‘ or ‗co mmercial property‘ in the reg istration.
Law Centre
properly apply to In other places, where the Act affects the substantive rights of consumers, the Act uses the
consumers. expression ‗individual‘ (see section 172) o r ‗predo minantly for personal, do mestic or
household purposes‘ (see sections 42, 47, 52 and 109).
Co mplexity of priority The Depart ment has responded to these concerns in this table.
rules. In relat ion to this
13 AG1 DLA Ph illips Fo x topic, the schedule to our
31 July submission to the
Standing Co mmittee on
Legal & Constitutional
Ve rsion 6: 10 th March 2010 22 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Affairs contains specific
questions in relation to this
issue (see points 28, 30-
34). Please provide
answers to those specific
issues if possible.
Priority of unperfected The comments were intended to indicate that consideration has been given to the priority
lessor - apparently no of an unperfected lessor against uns ecured or other unperfected interests in the goods, and
changes to Bill. to set out the reasons for the outcomes reached by those provisions.
Although we note your
comments that the
arrangements applying to
lessor are a feature of the
functional approach to
security interests, this
would not appear to deal
with the reco mmendation
13 AG1 DLA Ph illips Fo x made by the Co mmittee
after conclusion of its first
Inquiry. In particular,
Reco mmendation 10
provided that:
'The Co mmittee
recommends that
consideration be given to
improving the priority of
an unperfected lessor
against unsecured or other
unperfected interests in the
Ve rsion 6: 10 th March 2010 23 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
goods.'
In our view, this would
include the interest of the
lessee or grantor of the
security interest. Does
your response to this issue
indicate that you have
rejected this
recommendation?
Lack of guidance - when a The Depart ment considers that paragraph 12(2)(i) makes it clear that a security interest
lease secures payment or includes a lease of goods (whether or not a PPS lease) that, in substance, secures payment
performance of an or performance of an obligation. A lease for a period of less than 12 months (or 90 days
obligation. in the case of serial nu mbered goods) will be a security interest if the transaction, in
substance, secures payment or performance of an obligation. As mentioned, short term
Given the functional leasing arrangements would not ordinarily, in substance, secures payment or performance
approach adopted, it is of an obligation.
unclear to us whether any
lease would be regarded as Clause 30 of the former Bill (Exposure Draft, 2008 version) covered when a lease would
not securing payment of secure payment or performance of obligation. Th is provision was omitted in response to
13 AG1 DLA Ph illips Fo x performance of an stakeholder comments that it was unnecessary, and that it is sufficiently clear when a
obligation. In the absence security interest secures a payment or performance of an obligation.
of the guidelines on this
issue, it would appear that
all leases will need to be
registered on the PPS
Register (other than
perhaps pure hiring
arrangements such as car
rental and similar
transactions).
Ve rsion 6: 10 th March 2010 24 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Clarification is required as The registration time needs to refer to when the registration becomes available for search
to when registration time in respect of the secured party.
commences.
A grantor may have granted more than one security interest over a particular item of
Under clause 160, collateral. The time for determin ing the effective reg istration of any one of those security
reference is made to the interests needs to be when the relevant secured party has registered their security interest,
registration time and not when any one of the secured parties has registered their security interest.
commencing at the
mo ment when the
description becomes
available for searching on
the register in relation to
the secured party. The
register will be noting the
name of the secured party,
the name of the grantor
13 AG1 DLA Ph illips Fo x
and details of the
collateral. When
searching the register,
most people will not be
searching against the name
of the secured party but,
rather, the grantor of the
security interest.
Accordingly, the
registration time referred
to in clause 160(1) needs
to be amended to refer to
being able to search the
register in relation to the
grantor, not the secured
party.
Ve rsion 6: 10 th March 2010 25 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Business of leasing goods. The Depart ment notes that adding the words ‗of that kind‘ as proposed would narrow the
We suggest that the words exception to the definition of ‗pps lease‘ established by paragraphs 13(2)(a) and (b), and
"of that kind" be inserted therefore broaden the scope of leases that are pps leases.
after "goods" at the end of
Co mbined four
13(2) AG 7 each of clauses 13(2)(a) The effect would be that a pps lease would include a lease by a person who does not
law firms
and 13(2)(b). Th is is regularly lease goods, or a lease by a person who does regularly lease goods of a
consistent, for examp le, particular kind but the lease in question is not of that kind. However, a pps lease would
with the draft ing approach not include a lease by a person who does regularly lease goods of the leased kind.
adopted in clause 46.
PMSI issue. See entries below.
In relation to this topic, the
schedule to our 31 July
submission to the Standing
Co mmittee on Legal &
14 AG1 DLA Ph illips Fo x
Constitutional Affairs
contains specific questions
in relation to this issue (see
points 13-15). Please
provide answers to those
specific issues if possible.
PMSI issue. Paragraphs The omission of the reference to ‗the seller‘ is intended to make the provisio n more
12-13 in the Schedule. consistent with the corresponding provision in the Canadian PPS legislat ion (for examp le,
see paragraph 2(jj) of the Saskatchewan Act (paragraph 2(jj)), which refers to ‗a security
[PMSI] is defined in interest taken in collateral, …, to the extent that it secures all o f part of its purchase price‘.
14 AG1 DLA Ph illips Fo x clause 14. It means a The provision now makes it clear that it applies when the obligation secured is the
security interest taken in purchase price, so that it is unnecessary to consider whether the person taking the security
collateral to the extent that interest is a seller.
it secures all or part of its
purchase price. Previously, Paragraphs 14(1)(b) will allow a debtor‘s financier to obtain a purchase money security
Ve rsion 6: 10 th March 2010 26 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
it was indicated that the interest in the collateral. The obligation owed by the debtor to its financier will not be the
security interest was taken purchase price (because the purchase price will have already been paid).
by the seller, however
these words have been
removed.
A security interest taken in
collateral by a person who
gives value for the
purposes of enabling the
grantor to acquire rights in
the collateral is also a
purchase money security
interest to the extent that
the value is applied to
acquire those rights. It is
unclear what rights this
refers to.
These matters should be
clarified.
PMSI issue. The intended policy outcome is that only purchase money security interests that are
perfected by registration will have purchase money security interest priority.
Paragraphs 14-15 in the
Schedule. Impo rtantly, the
interest of a lessor or
14 AG1 DLA Ph illips Fo x bailor o f goods under a
PPS Lease is a purchase
money security interests
and therefore provides (if
perfected) superior priority
over other security holders
Ve rsion 6: 10 th March 2010 27 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
(although it is important to
note it does not provide
protection to the holder of
such security interest
which is unperfected at the
time of insolvency).
If a purchase money
security interest is not
perfected, it provides no
additional benefits to the
holder of such security
interest relative to the
holder of non-purchase
money security interests.
This appears to be
inconsistent with the logic
which provides such
security interests super
priority if they are
perfected.
The reference to "secures" The Depart ment considers that the provision achieves the intended policy effect. The Act
all or part of the purchase emp loys the language in the corresponding provision of the Saskatchewan PPS Act. It
price in clause 14(1)(a) notes that the suggestion would make the text of paragraphs 14(1)(a) the same as that of
14(1) AG2 Clayton Utz should be a reference to paragraph (a)(i) o f the defin ition of purchase money security interest in the New Zealand
securing the obligation to PPS Act. The Depart ment considers that both forms of words have the same effect, and
pay all or part of the that the Saskatchewan form has the advantage of brevity.
purchase price.
The word ‗seller‘ has been Removal o f seller makes the paragraph more consistent with the corresponding
14(1)(a) 19 Mr Dav id Turner
removed. Saskatchewan provision (subparagraph 2(1)(jj)(i))).
Ve rsion 6: 10 th March 2010 28 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
A licence of intellectual property rights that is revocable for failure to pay royalties under
the licence will not be a security interest (see paragraph 12(5)(a)). However, a security
Independent Film
interest would include an interest in licenced intellectual p roperty granted by a licensee
& Telev ision Ensure that this clause
that secures payment of the royalties. The security interest would be purchase money
14(1)(b) 25 Alliance allo ws a PMSI for
security interest under paragraph 14(1)(b) to the extent to that a lender (or licensor in a
intellectual property.
related contract) provides value to enable the licensee to acquire the licensed intellectual
property (eg by making the royalty payments). The secured parties‘ rights would be
subject to the rights held by the licensee under the licence agreement.
Amended clause is too The Depart ment considers that the provision achieves the intended policy effect.
14(2)(b) 6 Clayton Utz
broad.
Clause 14(2)(c) should be The Depart ment considers that paragraph 14(2)(c) achieves the intended policy effect in
deleted. Security interests relation to motor vehicle financing. However, it notes that Item 11 of Schedule 4 o f the
in collateral that, at the Personal Property Securities (Consequential A mendments) Act 2009 proposes the
time of attach ment, the insertion of a subsection 14(2A) intended to reduce the complexity of the Act.
grantor intends to use
predominantly for
personal, do mestic or
household purposes should
not be excluded fro m the
14(2)(c) AG2 Clayton Utz PMSI p rovisions.
To retain clause 14(2)(c)
may have a negative
impact on (for examp le)
motor vehicle financing.
Under the current law, a
financier would expect to
obtain a first ranking
security interest over a
motor vehicle that the
Ve rsion 6: 10 th March 2010 29 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
financier financed. If
clause 14(2)(c) is retained,
financiers may need to
seek specific releases of
motor vehicles fro m pre-
existing general security
interests prior to providing
financing, which would
not be required if clause
14(2)(c) was removed.
We also note that there is
no equivalent of clause
14(2)(c) in the New
Zealand PPS legislation.
PMSIs for consumer Paragraph 14(2)(c) represents a policy choice preferring all-assets security granted to
Co mbined four purposes. Appears secure commercial finance over consumer purchase money security interest (which the
14(2)(c) AG 7
law firms anomalous and should be Depart ment understands are rarely enfo rced).
removed.
Piper A lderman;
2,
Whether the clause will
Mr Dav id Turner;
increase the cost of
14(2)(c) 19
consumer finance of non-
Australian
serial nu mbered goods.
20 Finance
Conference
14 Australian Retention of provision will
14(2)(c) Bankers' dimin ish choice in finance
Association for consumer.
Ve rsion 6: 10 th March 2010 30 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Queensland Law
Society
23
Suggests the bill consider Subsections 14(3) and (6) of the Act prevent the tacking of obligations with PMSI
14(3), (4) and the Canadian Chrysler priority.
19 Mr Dav id Turner
(5) decision, reconsiders
notice requirements.
There may be unintended The Depart ment notes that this issue is primarily addressed in Item 33 of Schedule 2 of
consequences if the the Personal Property Securit ies (Co rporations and Other Amend ments) Bill 2010. This
definit ion of investment and other amendments of the rules regarding investment entitlements (now defined as
15 6 Clayton Utz
entitlement is lin ked to the ‗intermed iated securities‘) has meant that the Act is now more effect ively harmonised
corporations legislation with the UNIDROIT Convention on Substantive Rules for Intermed iated Securit ies,
definit ion. known as the ‗Geneva Securit ies Convention‘, wh ich was adopted in Geneva, Swit zerland
on 9 October 2009 by the diplo matic Conference to adopt a Convention on Substantive
The reference to an Rules regarding Intermediated Securities: for further in formation see
investment entitlement http://www.unidro it.org/english/conventions/2009intermediatedsecurities/main.htm.
being the "rights" of the
specified person is too Any undesirable unintended consequences could be addressed through regulations made
broad. We understand that under paragraphs 8(1)(l), 8(3) and 12(5)(b).
the definition is only
intended to include the
15(1) AG2 Clayton Utz
rights of ownership of the
financial products to which
the investment entitlement
account relates, not
ancillary rights. This
should be clearly
specified.
Ve rsion 6: 10 th March 2010 31 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Co mplexity of priority This is a drafting matter that does not affect the Act‘s legal effect.
rules.
Chapter 3 of the Act is intended to highlight that special rules apply to security interests
Paragraph 34 in the involving accessions and commingled goods. Rather than adding to complexity, The
Schedule. In addit ion to Depart ment considers that separating them in this way p rovides additional transparency
the priority ru les contained for these rules.
in Chapter 2, further
priority rules are contained
in Chapter 3 in relation to
accessions and processed
Chapter 2 and 3 AG1 DLA Ph illips Fo x
and commingled goods.
The appearance of priority
rules in different parts of
the Bill only adds to the
complexity of the
proposed legislation and
makes it d ifficult to get a
clear p icture of the priority
outcomes applicable in
various circu mstances.
Security Agreements This is a drafting matter that does not affect the Act‘s legal effect. The explanatory
generally do not provide memo randum for the Act will be amended to reflect this. The drafting reflects the
for future advances. corresponding provisions in the Saskatchewan and New Zealand legislation. While an
earlier d raft of the Act referred to securing future advances, the language was changed in
The ability of a financier response to the recommendation of the Senate Standing Co mmittee on Legal and
18(4) AG1 DLA Ph illips Fo x to provide future advances Constitutional Affairs that the Act should use overseas provisions as often as possible to
is normally dealt with in allo w overseas experience to provide guidance for the Australian model.
facility documentation
(other than the security
document itself). The
Security Agreement will
Ve rsion 6: 10 th March 2010 32 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
normally be an 'all
moneys' document. It will
not 'provide for future
advances'. We believe it is
more appropriate to refer
to a Security Agreement
securing future advances.
The existing language is the same as that in New Zealand and Saskatchewan. The version
of the Act previously considered by the Co mmittee referred to ‗secure future advances‘.
18(4) 6 Clayton Utz Unintended ambiguity
The language was changed to imp lement the Co mmittee‘s reco mmendation that the Act
should emp loy language based on the New Zealand the Saskatchewan legislation.
Needs to be expanded – The Act provides that the Act attaches to collateral (which includes after-acquired
how does 19(2) operate on property) when the grantor has rights in the collateral, or the power to transfer rights in
19 26 The Victorian Bar
after-acquired future the collateral to the secured party. The grantor would ord inarily acquire rights in after-
property. acquired property when the grantor acquires the collateral.
The reference to PPS lease The Depart ment notes that this issue is addressed in Item 34 of Schedule 2 of the Personal
should be replaced with Property Securit ies (Corporations and Other Amend ments) Bill 2010. This item clarifies
any lease or bailment. that a grantor has rights in goods that are bailed to the grantor under a PPS lease when the
There are other types of grantor obtains possession of the goods for the purposes of paragraph 19(2)(a). Th is
lease that are within the would extend the rule that currently applies to leases, to bailments.
operation of the PPS
19(5) AG2 Clayton Utz legislation. Therefore, if
this change is not made,
there is no mechanis m to
determine when the
grantor will be deemed to
have obtained rights to the
leased goods under leases
that are regulated under
Ve rsion 6: 10 th March 2010 33 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
the legislation but which
are not PPS leases.
It is intended that a security interest will be enforceable against a third party despite it not
Enforceab ility of security being perfected by registration (or being perfected in another way). Perfect ion of a
interests re: third parties, security interest is relevant to priority among competing security interests. Priority
20 13 DLA Ph illips Fo x
even when not perfected between unperfected security interests in the same collateral is to be determined by the
with reg istration. order of attachment of the security interests (section 55(2). Perfection is also relevant to
whether the security interest survives the grantor‘s insolvency (section 267).
It will be sufficient for the a security agreement to describe the collateral as ‗all of the
grantor‘s present and after-acquired property‘ or ‗all of the grantor‘s present and
after-acquired property except specified items or class es of personal property‘
(subparagraph 20(2)(b)(ii) and (iii)). In other cases, when the collateral relates to
particular co llateral, a security agreement must include ‗a description of the particular
collateral‘ (subparagraph 20(2)(b)(i)). If particular collateral is described using the terms
‗consumer property‘, ‗co mmercial property‘ or ‗equip ment‘ the description must go on to
Insufficient precision of more particularly describe the collateral by reference to item or class (subsection°20(4)).
Co mbined four
20 17 what description should
law firms
suffice. Apart fro m this, a security agreement will be effect ive according to its terms (subsection
18(1)) (including in relation to the property described in the security agreement).
Gu idance is provided on when a description will be sufficient at section 8 (defin ition of
‗description‘): a description of a part icular item must identify the item o r the class to
which it belongs, and a description of a class must identify the class. The Depart ment
considers that to require collateral to be more precisely defined in a security agreement
would unnecessarily restrict contractual freedo m.
Certain terms used which The Act uses a number of concepts that are not defined. It is not feasible to define every
20 AG1 DLA Ph illips Fo x are no longer defined. term used by the Act.
Clause 20(4) refers to a Omitting the reference to equip ment in section 20(4) would mean that it would be
Ve rsion 6: 10 th March 2010 34 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
number of concepts which sufficient to describe the collateral as ‗equip ment‘. The overseas PPS legislat ion provides
are no longer defined. In that it is not sufficient to describe collateral as ‗equip ment‘. This provision is retained in
particular the reference to part because of the recommendation of the Senate Standing Co mmittee on Legal and
equipment should be Constitutional Affairs that the Act should use overseas provisions as often as possible to
deleted. In addition allo w overseas experience to provide guidance for the Australian model. It is also
reference is made to retained because of concern that a description of the collateral as ‗equip ment‘ might not
personal property mo re be sufficient to allow the parties or a third party to determined if a particular item of
particularly described by property was covered by the security agreement.
reference to item or class,
however the terms 'item' or
'class' are not defined.
Clause 22(1)(d) refers to
the concept of 'negotiable
document of title',
however this definition has
been removed fro m the
Bill.
The Act has the intended effect. The Depart ment notes that subsection 20(2) contrasts
‗particular collateral‘ with ‗all o f the grantor‘s present and after-acquired property‘.
Co mbined four 'particular collateral' –
20(2) 17
law firms requires clarification. The Depart ment will consider whether the reference in subparagraph 20(2)(b)(iii) to
‗specified items or classes of personal property‘ should be replaced with a reference to
‗particular collateral‘.
The Depart ment notes that this issue is addressed in Item 37 of Schedule 2 of the Personal
Acceptance of security
Property Securit ies (Corporations and Other Amend ments) Bill 2010. This item permits a
Co mbined four agreement. Can this clause
20(2)(a)(ii) AG 7 grantor to accept a security agreement by performing an act (or o mission) that, while not
law firms be amended as marked
specified in the writing, reasonably appears to be done with the intention of adopting or
below?
accepting the writing. The amend ment also makes it clear that whether the person
Ve rsion 6: 10 th March 2010 35 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
intended to adopt or accept the writ ing is to be assessed objectively.
2) A security agreement
covers collateral in The item also recognises that in certain circu mstances, an omission could be taken to
accordance with this constitute adoption or acceptance of an agreement.
subsection if:
(a) the security
agreement is
evidenced by writing
that is:
(i)signed by the
grantor (see
subsection (3)); or
(ii)otherwise binding
on the grantor
because of an act by
which it becomes
bound by the
writing; and
The requirement that the
mode of acceptance be
specified in writing is too
inflexible (and may trouble
SME's who would be less
likely to be aware of the
need to specify the
requirement) and the
intention requirement is
too uncertain. The test
should also facilitate
reliance on the
assumptions available
under section 128 of the
Ve rsion 6: 10 th March 2010 36 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
Corporations Act. The
suggestions above are
intended to achieve that.
Relevance of clause 20 to The Depart ment notes that this issue is addressed in Item 38 of Schedule 2 of the Personal
perfection. This clause Property Securit ies (Corporations and Other Amend ments) Bill 2010. This item adds a
appears to contemplate new requirement that a security interest must be enforceable against third parties before it
that a security interest can is perfected. This would provide greater certainty in the grantor‘s insolvency, because a
Co mbined four
21(1)(b) AG 7 be perfected, even if it is security agreement would generally need to be evidenced in writ ing signed or adopted by
law firms
not enforceable against the grantor to survive the grantor‘s insolvency.
third parties in accordance
with clause 20. Is this
intended?
Consistent with the functional approach to security interests taken by the Act, all security
interests will be reg istrable in the single national online Personal Property Securities
Allow intellectual property
Register. The policy object ive is to harmonise the law on security interest regardless of
Independent Film interests subject to a
the nature of the collateral. In recognition of the fact that some kinds of collateral are
21(2) 25 & Telev ision specialised register to be
ordinarily identified by a serial number, the Act allows security interest in serial-
Alliance perfected by registration in
numbered collateral to be registered by serial nu mber. This facility will be available to
the specialised register.
intellectual property that has a serial nu mber allocated by IPAustralia. Th is will provide
functional equivalence to registration on the separate intellectual property register.
There should be a The Depart ment has noted this comment. Whether a person has control of satellites and
provision in clause 21 or in other space objects will be a matter for the general law.
Part 2.2 wh ich makes it
clear that, for "control" to
21(2)(c)(v i) AG2 Clayton Utz be held over satellites or
other space objects, a
person will need to
establish that it has control
at general law. Currently,
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Section/Issues Sub no. Submi tter Issue AGD Comment
there is no concept of
control for the purposes of
creating a security interest
over such assets and it is
confusing not to specify
what is required to satisfy
control under clause
21(2)(c)(v i).
It should be made clear The Depart ment has noted this comment.
that the references in the
paper to "control" are for
the purposes of
determining whether or
Consumer Action not an asset is a circulat ing
Part 2.3 AG5
Law Centre asset and not for the
purposes of determining
the manner in wh ich
perfection of the security
interest over the assets
occurred.
It is not appropriate to The Depart ment notes that only personal property of the kind covered by
provide that, where a subsection°340(5) is not a circu lating asset if (among other things) an effective
security interest is taken registration with respect to the property discloses that the secured party has control of the
over all or substantially all personal property (see paragraph 340(2)(a)).
of the assets of a grantor,
Part 2.3 AG2 Clayton Utz it is not possible to
describe that some portion
of that property is subject
to control. For examp le, if
a company granted a
security interest over all of
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Section/Issues Sub no. Submi tter Issue AGD Comment
its assets in favour of a
financier that financier
may have control over
certain of those assets
which would otherwise be
considered to be
circulat ing assets. It
seems unreasonable to
require that financier to
separately register its
security interest to record
over the relevant assets to
indicate that it has control.
'Control' as a method of Control is recognized in Canada and the USA as a method of perfecting certain security
Part 2.3 26 The Victorian Bar
perfection is problematic. interests.
The Depart ment notes that this issue is addressed in Items 39 & 48 of Schedule 2 o f the
Personal Property Securities (Corporations and Other Amend ments) Bill 2010. Item 39
will have the effect that only an ADI with who m the account is held would be able to
perfect a security interest in the ADI account by control. All other secured parties would
have to register in order to perfect a security interest in an ADI account. The practical
effect of this change is that a secured party that has a security interest in an ADI account
Concerned about would not need to incur the expense of perfecting by control in order to ensure they
Part 2.3 19 Mr Dav id Turner perfection by control in maintain their first prio rity as against other secured parties. Rather, the ordinary principal
relation to ADIs. of first to register would apply (subject to the interest of the ADI with who m the ADI
account is held).
The ADI with who m the account is held would be able to perfect a security interest in an
ADI account by control. The A DI would therefore have the highest priority (because
perfection by control would also have a higher priority than perfection by registration).
This means that the ADI would not be vulnerable to other secured parties claiming the
ADI account, so that the ADI account would be available to the ADI for prudential
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Section/Issues Sub no. Submi tter Issue AGD Comment
regulation purposes. Allowing the ADI to perfect the security interest by control, and
obtain the highest priority would also be consistent with the ADI‘s right of set-off and
combination of accounts in relat ion to the ADI account.
Item 48 (the Gu ide to Part 2.6 - Priority between security interests) also includes a
paragraph that explains the effect if this change.
Section 26 provides that a secured party has control of an investment entitlement if it can
Should deal with
Australian require the investment intermed iary to debit the relevant account without seeking the
investment instruments
26 21 Financial Markets grantor‘s consent. The section focuses on the extent of the secured party‘s power to
registered in the name o f a
Association control dealings in the investment entitlement without regard to legal formalit ies such as
3rd party as per clause 27.
in whose name the investment entitlements are registered.
As reflected in separate The Depart ment notes that this proposal is taken up in Items 13, 14 and 15 of Schedule 4
discussions that we have of the Personal Property Securities (Consequential A mendments) Act 2009.
had with the Attorney-
General's Depart ment we
support the amendment of
clause 26 to:
(a) o mit clause 26(2); and
26 AG2 Clayton Utz
(b) amend clause
26(1)(b)(i) by
substituting "or" for
"and" at the end of that
clause — with the
effect that the tests in
clauses 26(1)(b)(i) and
(ii) would beco me
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Section/Issues Sub no. Submi tter Issue AGD Comment
alternatives.
The Act will allow the same person to contract in their different capacities of secured
party and investment entitlement intermed iary.
The substantive rules concerning investment entitlements, including when a control
agreement would effect control of an intermed iated security, included in the Act were
developed having regard to work sponsored by UNIDROIT to develop a convention on
intermediated securities. The UNIDROIT Convention on Substantive Rules for
Clause does not deal with
26(1)(a) 6 Clayton Utz Intermediated Securit ies, known as the ‗Geneva Securities Convention‘, was adopted in
all circu mstances.
Geneva, Swit zerland on 9 October 2009 by the dip lo matic Conference to adopt a
Convention on Substantive Rules regarding Intermed iated Securities: for fu rther
informat ion see
http://www.unidro it.org/english/conventions/2009intermediatedsecurities/main.htm. The
Depart ment will consider whether the Act should be amended to harmonise its effect with
the substantive rules in the convention concerning security interests, including in relation
to when a control agreement would effect control of an intermediated security.
Control of investment
The Depart ment notes that this issue is addressed in Item 41 of Schedule 2 of the Personal
entitlements. Clause
Property Securit ies (Corporations and Other Amend ments) Bill 2010. This item allo ws a
26(1) should be expanded
secured party to have control of an intermed iated security where the secured party is also
by making the
registered as the holder of the intermed iated security. In such a situation, the secured
amend ments marked
party would not need an agreement with the grantor and the intermediary in order to
below:
exercise effective control of the instrument. Th is approach would be consistent with the
A secured party has
Co mbined four treatment of investment instruments in section 27, whereby investment instruments could
26 AG 7 control of an investment
law firms be controlled by the controller registered as the owner, by possession or by agreement. It
entitlement that is
would also be consistent with the approach to security interests in intermediated securities
credited to an investment
set out in the Geneva Securities Convention (see
entitlement account if,
http://www.unidro it.org/english/conventions/2009intermediatedsecurities/main.htm).
and only if:
(a) the investment The current section 26 provides that for an agreement to be effective, it must be between
entitlement account is the secured party, the grantor and the intermed iary. Ho wever, it is also possible for a
maintained in the secured party to exercise practical control of an intermediated security if there is an
Ve rsion 6: 10 th March 2010 41 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
name of the secured agreement between the grantor and the intermediary, or between the grantor and the
party; or secured party of which the intermediary has notice. The new section 26 would provide
(b) there is an agreement that such agreements will also be effective to give a secured party control of an
in force between the intermediated security for the purposes of the PPS Act.
secured party, the
grantor and the This item also reflects the change in terminology fro m investment entitlements to
investment intermediated securities.
entitlement
intermediary who This amend ment would also ensure that the reference to an intermediary in subparagraph
maintains the account 26(2)(a)(iii) includes a person prescribed under the subsection 26(3) regulations where
or an agreement that intermediary is an intermediary under paragraph 15(2)(b). Consequently, a
between the grantor subparagraph 26(2)(a)(iii) notice could be provided to someone other than the paragraph
and the intermediary 15(2)(b) intermediary where the person is prescribed in accordance with the subsection
or between the grantor 26(3) regulations.
and the secured party
of which notice is This item would also establish a regulation-making power for prescribing people and
given to the classes of people in accordance with paragraph 15(2)(b).
intermediary; and
The proposed new
paragraph (a) is consistent
with Art icle 12 of the
latest draft of the proposed
UNIDROIT Convention
on Substantive Rules
Regarding Intermed iated
Securities which
contemplates that
intermediated securities
may be granted by way of
an absolute transfer. As
such, the Bill should
provide that if investment
entitlement intermediary
Ve rsion 6: 10 th March 2010 42 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
registers the secured party
as the holder of an
investment entitlement or
maintains the entitlement
in their name, the secured
party has control of that
investment entitlement.
This is comparab le to
clause 27(2) which applies
to investment instruments.
The changes to paragraph
(b) above are necessary
because there will often
not be a tripartite
agreement between the
security party, the grantor
and the investment
intermediary as
contemplated by clause
26(1)(a). The changes,
when read with the
existing provisions of
clause 26 of the Bill, are
consistent with the
definit ion of 'control
agreement' contained in
Article 1(k) subparagraphs
(x) and (y) of the latest
draft of the proposed
UNIDROIT Convention
on Substantive Rules
Regarding Intermed iated
Securities.
Ve rsion 6: 10 th March 2010 43 of 131
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Please note that the
UNIDROIT Convention
referred to above is not to
be confused with the
Hague Convention which
relates only to choice of
law not to substantive law.
We note that the Hague
Convention will be
incorporated separately
into the Bill.
The reference to "the For the purposes of paragraph 27(3)(b), a person will have possession of an investment
controller" in clause instrument in the circu mstances mentioned in subparagraph 26(4)(c)(ii): that is, the
27(3)(a) should be controller will have possession of the instrument when another person (other than the
replaced with "the grantor or the debtor) has possession of the certificate on behalf of the possessor.
27(3)(a) AG2 Clayton Utz
controller (or a person who
has agreed to act on the
instructions of the
controller".
Section 28 does not exhaustively set out the requirements for obtaining control of a letter
of credit. Rather, it provides that a secured party does not have control of a right to a
Relationship between
Australian payment or performance of an obligation unless the obligor has consented to an
'control' and letter of credit
28 18 Securitisation assignment of the obligation to the secured party. The provision allows the obligor to
problemat ic in
Foru m control to whom they may beco me obligated under the letter of credit. The requirement
securitisation context.
would be satisfied by an at large consent that the obligation may be transferred to any
person.
The reference to the Subparagraph 24(6)(c)(ii) allows a person to take possession of the investment instrument
28 AG2 Clayton Utz "proceeds" on the last line for the purposes of paragraph 27(3)(a) when another person (other than the grantor or the
of clause 28 should be
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amended to refer to the debtor) has possession of the certificate on behalf o f the possessor.
"benefit" of the letter of
credit given that the letter
of credit may (as
acknowledged earlier in
the clause) provide for the
performance of an
obligation.
The Depart ment notes that this issue is addressed in Items 43 and 44 of Schedule 2 of the
Personal Property Securities (Corporations and Other Amend ments) Bill 2010.
Item 43 would mod ify the test in section 44 to make it consistent with the test in
subsection 43(2) for taking free of an unperfected security interest. The amended test
would allow a person to take the property free of a security interest unless they were a
party to the transaction that created or provided for the security interest. This would
minimise the number of d ifferent tests in the PPS Act. The narro wer exception is also
appropriate given the relative ease with which security interests in serial-numbered goods
can be registered.
Clauses 31-52 –
Co mbined four
Part 2.4-2.5 17 inconsistent language and
law firms Under the amended test, it would not be necessary to determine the actual knowledge of
tests of knowledge.
the buyer or lessee as item 44 would repeal subsection 44(3).
The remain ing provisions in Part 2.5 that include a knowledge test refer to actual or
constructive knowledge, apart fro m section 46. Section 46 reflects the intended policy
outcome that a person acquiring personal property in the ordinary course of the seller‘s
business should not have to make inquiries, and should be able to rely on their actual
knowledge.
Part 2.4 – 2.7 AG1 DLA Ph illips Fo x Co mplexity of priority The Act provides greater transparency concerning priority than the existing arrangements,
Ve rsion 6: 10 th March 2010 45 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
rules. and has brought to light the complexity inherent in priority rules.
Paragraph 28 in the
Schedule. In general, the
rules relat ing to security
interests (starting at the
specific ru les for
attachment and perfection
(clause 30) and ending at
clause 77) provide for an
extremely co mplex reg ime
for determining the
priority of security
interests. This comp lexity
is added to by the
substantial number o f
scenarios for which ru les
have been developed.
DLA Ph illips This provision has the practical effect of giv ing the purchaser of the collateral either (a)
Fo x; the benefit of any increase in the value of the collateral since the transaction that gave rise
13
Unclear restriction re: to the proceeds; or (b) the benefit of any proceeds held by the grantor.
32(2)
Australian market value of collateral.
21
Financial Markets
Association
Proceeds from dealings The Depart ment notes that this issue is addressed in Item 42 of Schedule 2 of the Personal
with collateral. This Property Securit ies (Corporations and Other Amend ments) Bill 2010. The item would
Co mbined four clause should apply to provide that a dealing in collateral which gives rise to proceeds would only extinguish a
32 AG 7 proceeds arising fro m a security interest if the secured party has agreed that the dealing would extinguish the
law firms
disposal of collateral security interest. This change draws a distinction between a dealing with and a disposal
rather than a dealing with of the collateral.
collateral. Under the
Ve rsion 6: 10 th March 2010 46 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
current drafting, if a This amend ment would min imise the risk that a secured party would have their security
security agreement interest ext inguished simp ly because they authorised a grantor to deal with the collateral
authorises the grantor to and would therefore allow g rantors more freedo m to deal with collateral. A disposal of
lease collateral (even on a collateral where there is express or implicit authorisation fro m the secured party would
short term basis), the continue to be an exception to the rule that the security interest continues in the collateral.
secured party will lose
their security interest in
the collateral and, arguably
only have a security
interest in the proceeds
(clause 32(1)(a)). Th is is
not appropriate in this
context.
Paragraph 34(1)(c)(ii) does not impose a duty to monitor whether or not a grantor transfer
the collateral. Rather, the secured party loses the deemed perfection of the security
interest shortly after acquiring actual or constructive knowledge that the gran tor has
transferred the collateral. When the secured party acquires actual or constructive
Fixing constructive
Co mbined four knowledge of the transfer, a secured party who wishes to preserve their position should
34(1)(c)(ii) 17 knowledge on transfer is
law firms register against the transferee. A person has constructive knowledge if they make the
more harsh than overseas.
inquiries that an ordinary or prudent person would make. In other words, the provision
prevents the secured party turning a deliberate blind eye to the matter in order to obtain
the benefit of the deemed perfect ion. The provision requires only the secured party act in
the way that an honest and prudent person would act.
Co mbined four 'Gap' between foreign The Depart ment notes that this issue is addressed in Items 17, 18 and 19 of Schedule 4 o f
39(2)(a) 17
law firms registration and perfection. the Personal Property Securit ies (Consequential Amend ments) Act 2009.
Clause 43 is confusing and The Depart ment notes that this issue is addressed in Item 21 of Schedule 4 of the Personal
43 19 Mr Dav id Turner policy reasoning is not Property Securit ies (Consequential Amend ments) Act 2009.
clear.
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Clause 44 does not classify The Act refers to personal property in subsection 44(1), but goes on to exclude inventory
personal property by in subsection 44(2). It has much the same coverage as New Zealand PPS section 55 in its
reference to its use in the application to consumer goods and equipment.
44 19 Mr Dav id Turner same way as New Zealand
PPS section 55 and also The Depart ment notes that this issue is addressed in Items 22 and 23 of Schedule 4 of the
adds a requirement for Personal Property Securities (Consequential A mendments) Act 2009.
new value.
The clause introduces the The Act reflects the preferred policy outcome, and is consistent with the position in New
concept that a dealing in Zealand (section 53) and Saskatchewan (subsection 30(2)).
the ordinary course of
business gives good title,
not only in the case of a
floating charge security,
but also where the charge
is a fixed and specific
charge, or, even a legal
46 26 The Victorian Bar
mortgage. …. where
certain classes of assets are
charged by way of fixed
charge on the basis that the
grantor ought not to be
able to dispose of the fixed
charge property (with
provision for legal
mortgage).
Second, it is not clear what The Depart ment agrees that the expression ―if the personal property was sold or leased in
is comprehended by the the ordinary course of the seller‘s or lessor‘s business of selling or leasing personal
46 26 The Victorian Bar idea of ‗o rdinary course of property of that kind‖ is less intrusive than merely ―the ordinary course of the seller‘s or
the seller‘s or lessor‘s lessor‘s business‖.
business of selling or
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Section/Issues Sub no. Submi tter Issue AGD Comment
leasing personal property
The wording of this section represents a policy decision by the Department limit ing the
of that kind‘ in clause 46.
application of the taking free exception.
The ―ordinary course of
business‖ is an idea of
wide import. It may
extend to a transaction of
an exceptional nature and
might extend to a transfer
of the entire undertaking
of a co mpany, ―if for
example, the company
were proposing to sell the
business with a view to
starting another business,
or of carrying on of the
same business in another
place‖, but not if, ―The
company was hard up for
money, and instead of a
mortgage of the assets the
defendant this arrangement
is made with him, the
effect of which is to
transfer to him … the
whole undertaking‘. The
expression ―the ordinary
course of the buyer‘s or
lessee‘s ordinary business
of selling or leasing
personal property of that
kind‘, if still uncertain,
would be less intrusive.
Ve rsion 6: 10 th March 2010 49 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
Clause 46 applies to The provisions in Part 2.5 are not intended to operate in a mutually exclusive manner.
property other than goods. One transaction may be affected by more than one provision in Part 2.5. The provision
It should be confined to would extend to the sale of intangibles (such as intellectual property) or financial products
the sale of goods. What (such as shares) made in the ordinary course of the seller‘s business of selling intangibles
other personal property is or financial p roducts of that kind.
46 26 The Victorian Bar
clause 46 meant to deal
with in the ordinary course
of business and which is
not dealt with by other
provisions in Part 2.5?
The exception in clause The Depart ment has noted the comment.
46(2)(b) where the buyer
or seller has actual
46 knowledge will be of
limited use if the security
agreement (or a restrict ion
in it ) cannot be registered.
Wording different fro m the The Act reflects the intended policy outcome.
46 19 Mr Dav id Turner
NZ legislation.
The personal property The Act reflects the intended policy outcome, and is consistent with the approach taken in
ought to be of a kind New Zealand (section 54) and Saskatchewan (subsection 30(3)).
47 26 The Victorian Bar usually used for personal,
domestic or household
purposes.
Australian Taking of personal The Act reflects the intended policy outcome.
47(1) 14 Bankers' domestic or household
Association property free of security
Ve rsion 6: 10 th March 2010 50 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
should be at arms length.
There should be an The Act reflects the intended policy outcome. Because of the anonymous nature of
exception that the rule CHESS purchases (i.e. the purchaser does not know the identity of the seller) it is difficu lt
does not apply if the buyer to see how a buyer could ever have actual knowledge that the purchase is in breach of a
has actual knowledge that security agreement. The seller‘s secured party should protect its security interest by
the purchase is in breach taking control of the investment instruments
of a security agreement.
―Ordinary course of
trading‖ can include large
and exceptional
49 26 The Victorian Bar transactions. Clause 49
would postpone the
interest of legal mo rtgage
of shares and that of a
person having some other
fixed security interest
notwithstanding that the
interest was noted on the
register or in the CHESS
system.
'Consensual' transactions; The extinguishment of security interests through a compulsory acquisition follo wing a
Co mbined four
50 17 impact on efficacy of takeover or a scheme of arrangement has policy imp lications beyond the scope of the
law firms
takeovers. review of personal property securities.
The inclusion of a The Act reflects the preferred policy outcome, and is based on Saskatchewan (section
―mortgage, pledge, lien‖ in 30(9)). It is not intended that a person should have constructive notice of a reg istration
50 & 51 26 The Victorian Bar the definition of made on the Personal Property Securit ies Register (section 300).
―purchaser‖ in clause
50(3), and the use of the
wide term ―transferee‖ in
Ve rsion 6: 10 th March 2010 51 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
clause 51, means that these
clauses regulate priorities
between competing
security interests
(otherwise dealt with in
Part 2.6). Although
provision is made in part
8.4 fo r obtaining
informat ion about security
interests which are wide
enough to identify any
negative restriction on
dealing in a security
agreement, there is no
provision for registering a
copy of the security
agreement or a précis of a
negative restriction. This
undermines the utility of
the constructive
knowledge (constructive
notice) exceptions in
clauses 50 and 51 (which
might include transactions
conducted at great speed
with limited opportunity
for actual inquiry) and
thereby weakens the
protection currently
afforded by the
Corporations Act 2001 in
relation to reg istered
charges given by
Ve rsion 6: 10 th March 2010 52 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
companies. Inclusion of
provision for registering
the security agreement or a
précis of any restriction on
dealing would enhance the
operation of the proposed
legislation.
Australian Clarify amb iguity about The Depart ment does not agree that the provision is ambiguous. The knowledge must be
51 21 Financial Markets knowledge of interest in held by ‗the person in whose name an investment entitlement intermed iary maintains the
Association investment entitlement. investment entitlement account‘.
The words of limitation, The Act reflects the preferred policy outcome. It is based on Chattel Securities Act 1987
―in relation to the (Vic) subsection 7(7).
property‖, will prevent a
security holder who is
ousted under clause 50 and
51 fro m being subrogated
to the whole of the
property secured in favour
of the competing
successful security holder.
53 26 The Victorian Bar The successful security
holder have executed
against the personal
property and satisfied its
claims out of that fund. In
those circu mstances the
ousted security holder
should be entitled to be
subrogated (on a
subordinate basis) to the
rights of the successful
Ve rsion 6: 10 th March 2010 53 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
security holder against
other property securing the
monies owing to the
successful security holder.
Does not include The Depart ment notes that this issue is addressed in Item 25 of Schedule 4 of the Personal
55(5)(b) 6 Clayton Utz
'perfection by control'. Property Securit ies (Consequential Amend ments) Act 2009.
Priority t ime in relation to Subs 57(1) provides that a security interest in collateral which is perfected by control at
perfection by control. any particular time takes priority over another security interest in the same collateral
perfected by another means.
If the Depart ment amends
clause 55(5)(b) to also The amend ment to paragraph 55(5)(b) is required to address a case where the security
55(5)(b) AG1 DLA Ph illips Fo x
refer to control of the interest has been continuously perfected, and that the security interest was first perfected
collateral, clause 57(1) by control.
will also require
amend ment to account for
the priority time.
Concerns about the effect The Act reflects the preferred policy outcome, and is consistent with New Zealand
58 26 The Victorian Bar
of the clause. (section 72) and Saskatchewan (subsection 35(5)).
The Depart ment notes that the New Zealand Act (s ubsection 70(2)) refers only to an
agreement, despite subsection 70(1) referring to ‗in a security agreement or otherwise‘;
while the Saskatchewan Act (subsection 40(2)) refers to ‗agreement or undertaking‘ and
‗security agreement or otherwise‘ (subsection 40(1)).
Subordination as opposed
61 13 DLA Ph illips Fo x
to priority deeds. The Depart ment notes that this issue is addressed in Items 27 & 28 of Schedule 4 o f the
Personal Property Securities (Consequential A mendments) Act 2009.
Item 33 o f Personal Property Securities (Consequential Amend ments) Act 2009 amends
subsection 61(2) o mitting ‗An agreement to subordinate a security interest‘ and replaces it
Ve rsion 6: 10 th March 2010 54 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
with ‗The subordination‘. This amendment improves the consistency between
subsections 61(1) and 61(2) by acknowledging that a subordination need not be by
agreement, but could be by deed or other instrument. The amend ment makes the Act
more consistent with the approach taken in the Personal Property Security Act 1993
(Saskatchewan) (subsection 40(1)).
Item 34 o f Personal Property Securities (Consequential Amend ments) Act 2009 amends
paragraph 61(2)(b) by o mitting ‗the agreement‘ and substituting ‗the subordination‘,
consistently with the amend ment to s ubsection 61(1) made by Item 33.
Change clause to The Act reflects the preferred policy outcome. The proposed change would increase
requirement to register uncertainty for other financiers.
Australian
within 10 days of the
62(3)(b)(i) 20 Finance
finance being provided,
Conference
not within 10 days of the
grantor taking possession.
Requirement that This provision has been renumbered subparagraph 20(2)(a)(i). The Act now includes an
Motor Trades
'evidenced by writ ing, alternative that the writ ing be ‗adopted or accepted by the grantor by an act specified in
63(3) 7 Association of
signed by the grantor' is the writ ing that is done with the intention of adopting or accepting the writing‘
Australia
impractical. (subparagraph 20(2)(a)(ii).
Should clarify that holder The Depart ment considers that is sufficiently clear that a registration may describe both
Australian of security interest can the grantor‘s present property and after-acquired or future property: in particu lar, that the
64(1) 18 Securitisation effect registration referring class referred to in the definition of ‗description‘ may include after -acquired or future
Foru m to future property of property.
grantor.
Reco mmends that the first Applying the first in time priority rule would in effect involve o mitting section 64 fro m
64 12 Australian
in time priority rule should the Act. Extending the notice period to 10 days may delay the provision of new finance to
Institute of Credit
apply, or the period for
Ve rsion 6: 10 th March 2010 55 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Management notice be extended to 10 businesses with liquid ity problems.
business days.
Co mplexity of priority The Depart ment notes that this issue is addressed in Item 29 of Schedule 4 of the Personal
rules. Property Securit ies (Consequential Amend ments) Act 2009.
Paragraph 30 in the The Depart ment notes that this issue is addressed in Item 29 of Schedule 4 of the Personal
Schedule. Property Securit ies (Consequential Amend ments) Act 2009. This item amends the notice
provision in subparagraph 64(1)(b)(i) so that the secured party seeking priority will only
Clause 64 provides that a be required to provide notice to the purchase money security interest holder over whom
non-purchase money priority is sought (not to all other purchase money security interest holders).
security interest in an
account (as original
collateral) has priority over
a purchase money security
interest in the account as
proceeds of inventory.
64 AG1 DLA Ph illips Fo x This priority requires the
secured party that holds
the prior security interest
to give notice to each
secured party holding a
purchase money security
interest in the account.
There is no requirement on
a holder of a purchase
money security interest to
give notice of the creation
of its security interest to
any existing security
holder and it is therefore
difficult to see how a
Ve rsion 6: 10 th March 2010 56 of 131
Responses to comments recei ved on
Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
holder of a non-purchase
money security interest in
an account would ever be
on notice of the existence
of a subsequent purchase
money security interest in
the proceeds of inventory
placed in the account. On
this basis, the rule will not
have the priority intended
to be provided by the
clause. The 2008 Bill
required notice of a
purchase money security
interest to be provided
where it was in relation to
inventory. This
requirement has been
removed.
Co mplexity of priority Section 55 is a default priority rule that ‗sets out the priority between security interests in
rules. the same collateral if this Act provides no other way of determin ing that priority‘: (see
subsection 55(1)).
Paragraph 32 in the
Schedule. Div ision 4 of Div ision 4 of Pa rt 2.6 provides specific rules regard ing priority of security interest in
Div 4 of Part Part 2.6 of the 2009 Bill transferred collateral. The default priority rules in section 55 do not apply because the Act
AG1 DLA Ph illips Fo x (dealing with priority of does set out a way of determin ing priority in the circu mstances to which those provision s
2.6
security interests in apply.
transferred collateral)
appears to override the
default priority ru les in
clause 55 (other than
where one of the security
Ve rsion 6: 10 th March 2010 57 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
interests referred to is
perfected by control).
Clause 69 and related rules This is a drafting matter that does not affect the Act‘ effect.
Co mbined four
69 17 on negotiable instruments;
law firms
should be moved.
Co mbined four 'Obligor' and not 'debtor' The Act uses the expression ‗debtor‘ rather than ‗obligor‘.
69 17
law firms suggested.
Co mplexity of priority Section 69 requires actual knowledge that the payment was made in breach of the security
rules. agreement that provides for the security interest.
Paragraph 33 in the Section 299 is an evidentiary provision providing that in certain circu mstances a person
Schedule. Clause 69 will be taken to have actual knowledge of certain matters unless the contrary is proved
(which is carried over beyond reasonable doubt. In the relevant circu mstances, section 299 will facilitate proof
fro m the 2008 Bill) has the of the actual knowledge required by section 69. There is no inconsistency between
effect of g iving an sections 69 and 299 so that one needs to be made subject to the other.
unsecured creditor priority
over a secured creditor
69 AG1 DLA Ph illips Fo x
unless the unsecured
creditor has actual
knowledge that the
payment it has received is
in breach of a security
agreement that provides
for security. In order to
avoid fraud, it should be
clear that this clause is
subject to clause 299.
Co mplexity of priority This is a drafting matter that does not affect the Act‘s legal effect.
Ve rsion 6: 10 th March 2010 58 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
rules.
Paragraph 33 in the
Schedule.
In addition, although the
heading to Division 5
refers to priority of
creditors and purchasers of
negotiable instruments,
chattel paper and
negotiable documents of
title, clause 69 is not so
qualified and applies to
any payment received by a
creditor. Th is requires
correction.
The Depart ment notes that this issue is addressed in Item 58 of Schedule 2 of the Personal
The reference to Property Securit ies (Corporations and Other Amend ments) Bill 2010. This item would
"negotiable instrument" in amend subparagraph 72(b)(ii) by replacing negotiable instrument with document of title.
72 AG2 Clayton Utz clause 72(b )(ii) should be This would rectify the inconsistency in the current section and clarify that section 72
reference to "negotiable applies to negotiable documents of title.
document of title".
Insolvency Subsections 73(1) and (2) provide a mechanis m for liens and statutory liens to have
Insolvency administrators'
73 10 Practit ioners priority over a security interest.
liens
Australia
74 25 Independent Film Clarify the priority The secured party in relation to a security interest in intellectual property may protect its
& Telev ision position of execution position by registering its security interest on the PPS Reg ister. An execution creditor
Ve rsion 6: 10 th March 2010 59 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Alliance creditor who obtains a should be able to rely on the PPS Register to identify any security interests attached to the
74 26
transfer of intellectual collateral.
The Victorian Bar property rights.
Should be contingent on Paragraph 74(4)(a) makes it clear that the secured party has until seizure by the execution
the execution creditor creditor to register its security interest. Confining the provision to goods would not be
having seized the collateral consistent with the functional approach to security interests imp lemented the Act.
and the rule should be
limited to goods.
Co mplexity of priority Accounts are defined as excluding ADI accounts (section 10). Consequently, section°64
rules. (which relates to accounts) does not impact on the operation of section 75 (which relates
to ADI accounts).
Paragraph 31 in the
Schedule.
75 AG1 DLA Ph illips Fo x
It is unclear how clause 75
(which deals with the
priority of security
interests held by ADIs in
an ADI account) works
together with clause 64.
The Depart ment notes that this issue is addressed in Items 31, 32 & 33 of Schedule 4 o f
Priority of unregistered the Personal Property Securit ies (Consequential Amend ments) Act 2009 as well as in It em
foreign security interests 59 of Schedule 2 of the Personal Property Securities (Corporations and Other
should extend to Amend ments) Bill 2010.
Co mbined four
77 17 investment entitlements,
law firms
ADI accounts and other
These items work in concert to effectively increase the scope of section 77 to apply its
forms of intangible
priority rules to security interests in intermed iated securities.
property.
Ve rsion 6: 10 th March 2010 60 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
'Perfection' doesn't exist in It is not a prerequisite to the operation of section 77 that the law of the relevant
Co mbined four
77 17 all international jurisdiction provide for perfection of security interests.
law firms
jurisdictions
The concern raised by The reference to ‗the transferee‘ in paragraph 79(1)(a) is correct. The intention is that the
Clayton Utz and the grantor and the transferee should be able to transfer the collateral despite contrary
combined four law firms provision in the security agreement. The effect is that the security agreement does not
relates to the ability of a affect the grantor‘s title. Other provisions of the Act deal with the effect of the transfer on
grantor and the transferee the security interest (eg paragraph 32(1)(a) and Div 4 of Part 2.6)
to consent to a transfer of
collateral even if the
security interest prohibits
the transfer of the
collateral.
79 AG1 DLA Ph illips Fo x
The amend ment wh ich
should be considered by
the Department is the
amend ment to
clause 79(1)(a) by deleting
the reference to 'transferee'
and replacing it with a
reference to 'secured party
under the security
agreement'.
Should this clause apply The Depart ment notes that this issue is addressed in Item 34 of Schedule 4 of the Personal
Clayton Utz;
only to agreements Property Securit ies (Consequential Amend ments) Act 2009.
79 6, 17 Co mbined four
between the grantor and a
law firms
secured party?
Ve rsion 6: 10 th March 2010 61 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
It is not appropriate that an The onus would ordinarily be on the account debtor to establish the matters in
account debtor (who has paragraphs°80(1)(a) & (b), and subsection 80(3).
been notified of a transfer)
can still agree with the
transferor to modify the
contract.
Although we understand
the Department's response
to this issue, it should not
be necessary for a
transferee (who has
80(4) AG1 DLA Ph illips Fo x
provided notice to the
account debtor) to have to
establish that the
requirements of
clause 80(3) have not been
satisfied in order to protect
its position. Accordingly
we agree with the
Australian Securitisation
Foru m that subparagraph
(b) of clause 80(4) should
be deleted.
Australian The transferee‘s interests are adequately protected by the requirements that the account
subparagraph b should be
80(4) 18 Securitisation debtor and transferor have acted honestly, and that the modification does not have a
deleted.
Foru m material adverse affect on the transferee‘s rights under the contract.
Australian An account debtor who has been asked to pay a third party should be entitled to proof that
Requiring proof of t ransfer payment to the third party will discharge their liability.
80(7)(b) 18 Securitisation
is unwieldy.
Foru m
Ve rsion 6: 10 th March 2010 62 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
The Depart ment notes that this issue is addressed in Items 35 of Schedule 4 of the
Personal Property Securities (Consequential A mendments) Act 2009. This item amends
Should clause apply to all
subsection 80(7) to remove the phrase ‗collateral that is‘. This amend ment is made to
80(7) 6 Clayton Utz transfers of an account or
ensure that this rule applies when the account or chattel paper is not collateral.
chattel paper?
Unclear as to what is This provision acknowledges that it is impractical for transferees of accounts and chattel
policy reason for including paper to examine each contract for prohib itions on assignment. It is intended to reduce
clause 81. the transaction costs associated with dealings in accounts and chattel paper.
Clause 81 is not qualified
81 AG1 DLA Ph illips Fo x
in the same way as
clause 79. What is the
policy reason for this?
Indeed, why is clause 81
included at all?
Co mbined four Delimitation of rights on Section 81(1) applies only to the transfer of the account, and not to other terms of the
81 17
law firms transfer of account. contract.
Include language with Section 81 is based on Article 9-406(d), which does not provide for notice to the account
respect to the account debtor.
81 26 The Victorian Bar
debtor contained in Article
9-406.
Co mpetition between The Depart ment considers that priority between more than one priority interest would be
agricultural PM SIs. Can determined in accordance with the default priority ru les in the Act.
Co mbined four clauses 85 and 86 be
85, 86 AG 7
law firms expanded to explain how
priority is to be determined
where there is more than
Ve rsion 6: 10 th March 2010 63 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
one priority interest over
the same crops or
livestock?
Limit on value of priority As per parliamentary co mmittee response, this will be considered during the proposed
of goods that become part statutory review of the PPS Act.
of processed or
commingled goods. A
secured creditor may
suffer unnecessarily if the
value of goods increases.
Harsh results can occur
particularly in re lation to a
mass of fungibles, but it
can also apply where the
Co mbined four value of the contributed
101 AG 7
law firms asset (and thus often the
product or mass) can
fluctuate, e.g. where the
original goods are precious
metals. Fungibles should
be dealt with by their own
provision (see below) and
priority in products and
other masses seem to be
dealt with by 102. We
wonder whether this clause
is necessary.
Priority where more than
As per parliamentary co mmittee response, this will be considered during the proposed
Co mbined four one security interest
102 AG 7 statutory review of the PPS Act.
law firms conti nues in processed or
commingled goods. The
Ve rsion 6: 10 th March 2010 64 of 131
Responses to comments recei ved on
Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
provision may provide
significantly unfair results,
particularly here there
goods are fungibles
There should be a separate
provision for fungibles
(which should apply other
commingled fungib le
property (including
investment entitlements
and interests and
intangibles)not just goods).
Under that provision
holders of security
interests should participate
in the mass and its
proceeds according to a
relative proportion of the
property contributed to the
mass rather than the value
of the amount secured.
For examp le if X had
security over 5 bottles of
wine and Y over 20 bottles
of identical wine, and the
bottles were mixed up,
they should be able to
enforce over 5 and 20
bottles respectively, or
share in the proceeds of
the mass in the proportions
of 5/25ths and 20/25ths.
That would then give a
Ve rsion 6: 10 th March 2010 65 of 131
Responses to comments recei ved on
Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
result consistent with what
would have occurred if
there were no
commingling. Th is would
equally apply if we were
talking about 5 tonnes and
20 tonnes of wheat mixed
together
For non-fungibles the
proportions in sub-clause
(5) should be according to
the value of the goods
contributed to the product
or mass as at the relevant
date of assessment of
priority (see the comment
on 109 above). For
example where gold is
supplied and mixed with
silver and then the price of
gold rises. Equally it
would prevent prejudice
when the value of the
goods contributed has
fallen.
Each of the above
recommendations would
gave a fairer result where
contributions to the mass
or product were provided
by several different
grantors.
Ve rsion 6: 10 th March 2010 66 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Basis for a pro rata Subsection 102(4) limits the value used in pro-rata outcome to the lesser of the obligations
102 26 The Victorian Bar outcome should be cost of secured or the cost of the goods.
goods not the sum secured.
Independent Film Subsection 105(1) is required to ensure that the Act will apply in the same way to both
105(1) 25 & Telev ision Remove goods and intellectual p roperty rights that secure the same obligations.
Alliance
Independent Film Amend to reflect Subsection 105(2) is consistent with UNCITRA L Reco mmendation 243.
105(2) 25 & Telev ision UNCITRAL
Alliance Reco mmendation 243.
In our submission to the The Act reflects the intended policy outcome. The Act does not allow contracting out of
Senate Standing enforcement provisions when the collateral is used predominantly for personal, domestic
Co mmittee, we included or household purposes: regardless of the purposes of the finance.
detailed co mments in
relation to the operation of
Chapter 4. Those
comments should be taken
into account in
Chapter 4 implementing the Senate
(Enforcement AG2 Clayton Utz Standing Co mmittee
Issues) recommendation that
Chapter 4 is simplified.
At a minimu m, Chapter 4
should be amended so that
the consumer protection
provisions apply in the
same circu mstances in
which the new National
Consumer Code will
Ve rsion 6: 10 th March 2010 67 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
initially apply. In
particular, clause 115(1)
should be amended so that
it applies in relation to a
security interest that
secures amounts owing
under a financing
arrangement where that
financing is provided
predominantly for
personal, do mestic or
household purposes. In
other words, the purpose
for which the relevant
financing is provided, not
the nature of the collateral,
should be relevant.
Part 4 Implementing this proposal would involve a substantial change fro m the existing
The new enforcement
6 Clayton Utz provisions. It is something that could be considered by the review mentioned in section
regime is too complex.
107-144 343.
Requests that the bill This is not necessary as the one registration will apply in the same way to each supply.
explicit ly provides that
Motor Trades
mu ltip le reg istrations will
109 7 Association of
not be needed. Consider
Australia
with operation of clauses
59, 67(1) and (2).
Australian Should delete 'that does This issue has been addressed through the inclusion of paragraph 109(1)(b ) in the Act.
109(1)(a) 18 Securitisation not' and substitute 'the
Foru m primary purpose of which
Ve rsion 6: 10 th March 2010 68 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
is not to'.
The Depart ment notes that this issue is addressed in Items 64, 66 and 69 of Schedule 2 of
the Personal Property Securit ies (Co rporations and Other Amend ments) Bill 2010.
Items 70, 66 and 69 amend the PPS Act so that it is not possible to take apparent
possession of consumer property.
Item 70 would include a new paragraph 109(5)(ba), which wou ld ensure that section 126
would not apply to collateral that is used by a grantor predominantly for personal,
Concern that clause 126 domestic or household purposes.
Consumer Action
109(5) 5 and 142(2) should not
Law Centre
apply to consumers. Since section 126 will no longer apply to consumer p roperty, subsection 115(4), which
allo ws the parties to exclude the operation of section 126 by contract, is redundant. Item
72 repeals the subsection.
As a result of the amendment made by item 64, section 126 would not apply to consumer
property. Item 75 inserts a note that draws attention to this amendment and refers to
paragraph 109(5)(ba).
Clause 109(5) of the Bill Section 123 allows collateral to be seized by any method permitted b law. If the law
excludes certain prohibits seizure by apparent possession, then the Act would not be authorise seizure by
enforcement rights and apparent possession.
remedies in the Bill fro m
Consumer Action applying to collateral used Subsection 142(2) allows a person to waive their right to redeem the collateral. This
109(5) AG5
Law Centre by a grantor predominantly would be subject to another law proh ibiting a person waiv ing their right to redeem the
for personal, domestic or collateral.
household purposes,
reflecting the intention that
consumer credit laws
Ve rsion 6: 10 th March 2010 69 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
remain the primary source
of rights relating to
consumer debts and
mortgages. Ho wever, it
does not exclude clauses
126 (seizure by apparent
possession) or 142(2)
(ability of debtor to waive
right to redeem seized
property before disposal),
even though these clauses
provide for new
enforcement rights that do
not currently apply in
relation to household
property. These two
clauses should therefore be
included in the list of
clauses that do not apply to
household property under
clause 109(5).
Contracting out of Section 111 will not apply in relation to provisions that the parties have contracted out of.
commercial The party‘s own commercial interests will be relevant to determining whether the person
reasonableness; still not has acted in a co mmercially reasonable manner.
Co mbined four
111 17 possible to contract out;
law firms
should at least not require
party to disregard its own
commercial interests.
111 19 Mr Dav id Turner Concerns about the The language used in the Act reflects the intended policy outcome.
commercially reasonable
Ve rsion 6: 10 th March 2010 70 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
manner test.
The Depart ment considers that the Act will not affect the arrangements for the payment of
Australian Uncertainty over proceeds dividends and other rights to shareholders. It notes that subsection 112(1) of the Act
112 14 Bankers' when security interest in a provides that ‗[i]n exercising rights and remedies provided by this Chapter, a secured
Association company. party may deal with collateral only to the same extent as the grantor would be entitled to
so deal with the collateral‘.
Should be subject to a The language used in the Act reflects the intended policy outcome.
115 26 The Victorian Bar requirement of not being
"manifestly unreasonable".
Where governed by The Act does not allow the parties to contract that the security agreement be governed by
Co mbined four foreign law, parties should a foreign law (apart fro m security interest in an ADI account: see subsection 239(4)).
115(2) 17
law firms be taken to have
'contracted out'.
Australian Corporations Act Implementing this proposal would involve a substantial change fro m the existing
116 14 Bankers' continues to apply – dual provisions. It is something that could be considered by the review mentioned in section
Association regimes. 343.
Clause 123 notice should This suggestion is addressed, in part, by section 119.
123 26 The Victorian Bar also satisfy other notice
requirements.
The reference to the This is a drafting matter that does not affect the legal effect of the provision.
"secured party" in the note
127(2) AG2 Clayton Utz under clause 127(2) should
be a reference to the
"enforcing party".
Ve rsion 6: 10 th March 2010 71 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Australian 'Reasonable expenses paid The Depart ment considers that in determining ‗the amount of any reasonable expenses
127(6) 14 Bankers' or incurred' should be paid or incurred by the enforcing party‘ it would be necessary to determine whether the
Association payable expenses were ‗reasonably paid or incurred‘.
The clause needs more Section 111 provides an effective additional safeguard.
136 26 The Victorian Bar safeguards as it is
effectively a foreclosure.
There may be categories of The Depart ment notes that section 140 does not apply when a receiver is appointed to the
persons who by operation grantor (see section 116), and therefore does not affect the priority of emp loyees with
of law have priority in respect to circulat ing assets in the receivership.
respect of the proceeds of
enforcement of a security The Depart ments notes that Corporations Act 2001 section 561 p rovides that certain
interest but who do not amounts owing the emp loyees must be paid out of property that is subject to a floating
actually hold interests in charge before the amount secured by the floating charge is paid to the chargee. Section
the relevant collateral. For 561 does not establish a security interest or an interest of any kind in the property.
example, emp loyees of a
140(2)(a) AG2 Clayton Utz
corporation with respect to
a security interest granted
by that corporation over
circulat ing assets.
The drafting of clause
140(2)(a) should be
amended to cater for these
categories of persons.
The right of reinstatement There does not appear to be any good reason why a third party should not be able to pay
142 26 The Victorian Bar should be limited to the the amount required to reinstate the agreement.
debtor.
Ve rsion 6: 10 th March 2010 72 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
Reinstatement provisions Section 111 will apply in these circu mstances.
Co mbined four cause significant difficulty
143 17
law firms when a party has to undo
acceleration.
AG 6 Electronic notice of The Depart ment has noted this comment.
suspension of operation of
the register is the most
efficient means. If
147 (6) (b) Phyllis Ray mond
possible notice should be
given in sufficient time for
registrants to be able to
save work in p rogress.
The Depart ment notes that this issue is addressed in Items 15and 82 in of Schedule 2 of
the Personal Property Securit ies (Co rporations and Other Amend ments) Bill 2010. This
amend ment responds to stakeholder concerns that, for example a description of ‗fru it‘
would not be sufficient to describe oranges. This amend ment clarifies that a description
Co mbined four may identify a class of personal property by identifying a larger class of personal property
Could be breached by
law firms, that includes the class. As a result, it would be clear that a more general collateral
assignees or consignors
151 17, 18 Australian description such as fruit would be sufficient to describe a more specific class of collateral
attempting to perfect
Securitisation such as oranges.
interest.
Foru m
Item 82 adds a note to section 151 which exp lains how this definition of description
would work in the context of section 151.
The drafting of clause 151 The Depart ment notes that this issue is addressed in Item 39 of Schedule 4 of the Personal
151 AG2 Clayton Utz should reflect the earlier Property Securit ies (Consequential Amend ments) Act 2009. Th is amendment extends the
exposure draft of the PPS effect of subsection 151(1) to PPSA security interests of the kinds specified in subsection
Bill. Fo r examp le, clause 12(3) of the PPS Act wh ich do not secure an obligation owed to the secured party named
Ve rsion 6: 10 th March 2010 73 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
151(1) should be amended in the application. The amended subsection 151(1) would allow a person to register a
to state: financing statement, or financial change statement if they believe on reasonable grounds
that the secured party holds, or will hold, a PPSA security interest of the kind mentioned
"A person must not apply in subsection 12(3).
for reg istration of personal
property as collateral
unless the person believes
on reasonable grounds that
a security interest in the
property is, or will be, held
by a person (who may or
may not be the applicant)
stated in the application to
be a secured party."
If changes of this nature
are not made throughout
the clause then it will be a
breach of the PPS
legislation for reg istration
of security interests which
do not secure payment or
performance of an
obligation to occur. We
assume this is not
intended.
The Registrar will not be able to give the verification statement to the grantor because the
153 13 DLA Ph illips Fo x Registration Registrar will not have the grantor‘s address (see section 153, Tab le Item 3, and the
Regulations Paper).
153 AG5 There are categories of
Consumer Action
assets which are unclear.
Ve rsion 6: 10 th March 2010 74 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
Law Centre For examp le:
(a) in the list of types of The Depart ment will be undertaking further consultations on the regulations prescribing
Consumer Property, classes of collateral for the purposes of section 153 Item 4(c) of the Act.
there are 3 classes of
agricultural assets,
namely, "Agriculture",
"Agriculture - Crops"
and "Agriculture -
Consumer Action Livestock". For
153 AG5
Law Centre Co mmercial Property
there is only one class,
which is "Agriculture".
Only "Agriculture -
Crops" and
"Agriculture -
Livestock" should be
used;
(b) for Co mmercial The Depart ment will be undertaking further consultations on which classes of collateral
Property there is a may or must be described by serial nu mber in accordance with section 153 Table Item
category of asset 4(b). Th is will be considered in the course of settling the Regulations.
referred to as
"Aircraft". Th is is not
replicated for
Consumer Action Consumer Property. It
153 AG5
Law Centre is not clear what this
separate category is
intended to refer to and
why it would not be
available for consumer
property. For example,
if a larger aircraft was
Ve rsion 6: 10 th March 2010 75 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
acquired for personal
use and security was
granted over that
aircraft, how would
that be registered?
Further, in any event,
separate registration
numbers are not
allocated for airc raft.
Those numbers are
allocated for aircraft
engines and aircraft
frames. Accordingly it
should be possible to
register an aircraft and
provide for serial
numbers for both an
engine and airframe
(and, if there are
mu ltip le engines, the
serial nu mbers for the
mu ltip le engines).
End time for registration The Depart ment considers that the maximu m registration period fo r different kinds of
for property descri bed serial nu mbered property could be considered in the review o f the Act required by section
by a serial number. Item 343 of the Act.
5 of th is clause requires
Co mbined four that a registration for The Act indicates this it is not mandatory to include informat ion about subordination
153(1) AG 7
law firms property described by a agreement (see section 154, Table Item 6).
serial nu mber have an end
time of no mo re than seven
years. Whilst this may be
adequate for motor
Ve rsion 6: 10 th March 2010 76 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
vehicles, it is unlikely to
be sufficient for other
potential categories of
property with serial
numbers, such as ships or
aircraft. Can this be
reconsidered?
Need to register
subordinati on
arrangements? Is the
intention behind item 6 in
the table that a financing
statement will need to
disclose any subordination
arrangements for it to
comply with the clause, or
is disclosure of
subordination
arrangements only
optional?
AG 6 Well stated. When The Depart ment has noted this comment.
‗approved form‘ is
referenced will a template
of the approved form be
made available on a
155 and 156 Phyllis Ray mond website. We had a Serv ice
Provider who provided
verification statements to
Secured Parties alleg ing
that they were produced by
the Register when, in fact,
Ve rsion 6: 10 th March 2010 77 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
they were not in the form
provided by the Register.
Provision of informat ion The informat ion that must be supplied should be readily available to the secured party.
157 13 DLA Ph illips Fo x by secured parties –
timeframe unreasonable.
Believes proposed penalty This question could be reconsidered in the review proposed by section 343 in light of the
Consumer Action is insufficient & should be practical operation of the Bill.
157 5
Law Centre strengthened to provide for
civil penalties.
There is no effective The Act reflects the intended policy outcome.
incentive for security
holders to comply with
clause 157, which requires
security holders to provide
notice of changes to
registration details to
grantors, including the
initial registration or
Consumer Action removal of a registration.
157 AG5
Law Centre This is the only way in
which the Bill attempts to
ensure grantors are
informed of registrations
that affect them, meaning
that grantors are wholly
reliant on security holders
in this regard. The Bill
now provides for a civ il
penalty regime in
Ve rsion 6: 10 th March 2010 78 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
recognition that the
compliance provisions in
previous drafts of the Bill
were inadequate. Clause
157 should be included in
this civil penalty regime
for the same reasons,
which would significantly
improve the effectiveness
of the sanction for non-
compliance with what is
one of the most important
protections for grantors
under the Bill. There is no
reason to wait three years
for a review of the new
law before making this
improvement, as this
amend ment would not
change the substantive
obligations of security
holders under the Bill in
any way, it would merely
provide a better guarantee
of comp liance.
Only individuals can make This has been corrected by the PPS (Consequential A mendments) Act – Item 40 of
Office o f the
a comp laint to the Privacy Schedule 4.
157(4) 8 Privacy
Co mmission, not all
Co mmissioner
grantors.
References to ' particul ar
163, 164 and AG 7 Co mbined four The Act in subparagraphs 20(2)(b)(ii) and (iii) already allows for a description to be ―all
collateral'. This should be
Ve rsion 6: 10 th March 2010 79 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
165 law firms clarified, so that, for present and after acquired property‖ or ―all present and after acquired property except…‖
example, all assets charges
are not invalidated, or Further, the Regulat ions Discussion Paper at paragraph 166 envisages that that ―All
charges over or assets in a Present and After Acquired Property‖ and ―All Present and After Acquired Property
particular location or of a except…‖ will be a class of collateral for the purposes of a registration pursuant to section
particular class. See 153.
comment above on
descriptions. The combined effect of this will be to clarify that a description of collateral that properly
describes an all assets charge as all present and after acquired property will be sufficient
to be a description of particular co llateral.
AG 6 This clause is well stated. The Depart ment has noted this comment.
165 Phyllis Ray mond It clarifies what is
seriously misleading.
Temporary effect iveness The section does not require continuous checking. It requires that the secured party act
Co mbined four of defective registration – when they become aware of the transfer.
166(2)(c) 17
law firms onerous on secured parties;
continuous checking.
Fee should accrue as a The maintenance fee is intended as a mechanism to in itiate the removal o f reg istrations
168 26 The Victorian Bar charge on the secured that are no longer needed.
property.
AG 6 Will copies of search Copies of search results will be kept on the Register.
result reports be kept on
169 Phyllis Ray mond the Register electronically
for use to refute or support
future allegations.
172 AG5 Consumer Action We do not agree with the As stated in the Privacy Impact Assessment report for the PPS Register, permitted
Ve rsion 6: 10 th March 2010 80 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Law Centre Depart ment that item 7 searches as set out in the June 2009 PPS Bill would not include searches for direct
(and items 8-10) in the market ing activities.
table of authorised
purposes under clause
172(2) do not permit
searching the register for
general credit assessment
or marketing purposes.
Item 7 clearly states that a
person can search for an
individual on the register
to ‗establish whether to
provide credit to, or obtain
a guarantee or an
indemn ity fro m, a person‘,
not merely to establish
whether to provide credit
or obtain a guarantee or
indemn ity secured against
a particular item of
personal property.
Further, pre-screening of
market ing offers could
also be encompassed in the
overly broad authorised
purposes under items 7-10,
as explained in the context
of the extensive review o f
general credit reporting
laws conducted last year.
This would be clearly
inappropriate and we do
Ve rsion 6: 10 th March 2010 81 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
not accept that there is any
justification to leave this
unaddressed for three
years when it could be
clarified now.
Items 7-10 in the table
under clause 172(2) should
be amended to clarify that
searches by reference to
the details of a grantor are
not permitted for general
credit assessment purposes
nor for cred it direct
market ing purposes
including pre-screening,
and are only permitted for
assessment of whether to
lend against an item o f
personal property held by
the grantor. There is no
reason to wait three years
for a review of the new
law before making these
amend ments given there
appears to be general
agreement that searches
should not be permitted for
credit assessment and
market ing purposes, and
the disagreement here
relates merely to the
drafting not to the
Ve rsion 6: 10 th March 2010 82 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
underlying policy
intention. The drafting
could therefore be clarified
given legitimate concerns.
The coverage of the This has been dealt with by the PPS (Consequential A mend ments) Act 2009 – Items 25-
Office o f the
Privacy Act in relation to 30 of Schedule 5.
173 8 Privacy
'interferences with privacy'
Co mmissioner
will need to be addressed.
Include a leg islative The Depart ment is developing a records management framework as required by the
principle to retain personal Archives Act 1983 for the PPS Register, which will include as a principle that personal
informat ion for the informat ion be held for the min imu m t ime possible once a registration is no longer active.
minimu m amount of time, The Depart ment considers this sufficient.
include a provision to
Office o f the prohibit the use of As stated in the Privacy Impact Assessment report for the PPS Register, permitted
173 9 Victorian Privacy informat ion for pre - searches as set out in the June 2009 PPS Bill would not include searches for direct
Co mmissioner screening and direct market ing activities.
market ing, any extension
of the use of the register Any extension of the use of PPS reg ister will need to be authorised by legislation, either
should require legislative by amending the Act or under regulations. Any proposals to include additional personal
amend ment or a further informat ion in the PPS Register will be subject to a published Privacy Impact Assessment
privacy impact assessment. before a decision is made to amend the legislation.
Ve rsion 6: 10 th March 2010 83 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
The Depart ment does not agree that the Act allows this conduct. This question could be
reconsidered in the review p roposed by section 343 in light of the practical operation of
Requests that items 7-10 in the Act.
the table under clause 172
be amended to restrict the As stated in the Privacy Impact Assessment report for the PPS Register, permitted
use of the PPSR for data searches as set out in the June 2009 PPS Bill would not include searches for direct
mining for consumer credit market ing activities.
assessment and marketing
purposes. The court order will be kept by the Registrar. The reg istration will show that the
Consumer Action
Registrar amended the registration in response to a court order.
Law Centre
172 5
Office o f the
173 8 Could clarify the
Privacy
Co mmissioner Registrar's ability to lodge
182 AG 6 complaints in 173(2), is 3rd
Phyllis Ray mond party misuse covered, plus
changes to the Exp lanatory
Memorandu m.
Will copies of court orders
be scanned an maintained
electronically as part of the
record of reg istration
history.
We agree with Legal Aid Section 184 will allow the Reg istrar to address systemic behaviour of the kind mentioned
Queensland that the in paragraph 184(1)(a).
Consumer Action Registrar should be able to
184 AG5
Law Centre identify and address
systemic conduct engaged
in by a security holder in
Ve rsion 6: 10 th March 2010 84 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
breach of their obligations
under the new Act. One
way to help deal with this
issue might be to clarify in
the Exp lanatory
Memorandu m to the Bill
that the Registrar‘s powers
under clause 184 to
remove registrations fro m
the register at the
Registrar‘s own init iative
if they are satisfied that the
retention of the data in the
register is contrary to the
public interest, might
apply where the Reg istrar
has concerns about
systemic unfair conduct by
a registrant, including
registering security
interests in personal
property that are not valid,
for examp le because such
security interests are void
under consumer cred it
laws regard less of
registration. The
regulations to be made
under clause 184 could
also address the
Registrar‘s power to
remove data fro m the
register due to this sort of
Ve rsion 6: 10 th March 2010 85 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
systemic conduct.
AG 6 Will the removal of data 7 Yes.
years after the effective
185 Phyllis Ray mond
date be electronically
done.
AG 6 What affect will this This is a matter that the Registrar will need to take into account in exercising the
clause have on discretion under subsection 188(1).
188 (2) Phyllis Ray mond registrations made after the
error was made and before
the correction was done.
AG 6 There is nothing in this The Depart ment notes section 272 of the Act.
clause which states that the
Registrar, Deputy
Part 5.9 Phyllis Ray mond Registrar or agent will not
be held liable for any
actions done when acting
in good faith.
Part 7.2 General co mments: (a) Consistency with conventions facilitates international transactions and adoption of the
convention by Australia.
(a) Adoption of
Conventions: There is The conflict of laws rules relating to investment entitlements (now called intermediated
no reason for the PPS securities) are being considered separately by the Govern ment in the context of the Hague
AG2 Clayton Utz legislation to be Conference Convention on Choice of Laws for Intermed iated Securit ies.
consistent
with conventions not The Act reflects the intended policy outcome. A llo wing choice of law in relation to the
adopted by Australia. validity, perfection and effect of perfection or non-perfect ion of a security interest would
result in uncertainty for third part ies. Consider the case where a person grants a security
(b) Investment interest in a motor vehicle, but the parties agree that the law of New Zealand (for
Ve rsion 6: 10 th March 2010 86 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Entit lements: Part 7.2 example) should govern the validity, perfection and effect of perfection or non-perfection
does not include any of the security interest. A person contemplating acquiring an interest in the vehicle wou ld
provisions in respect of not know that they should search the New Zealand PPS Reg ister instead of the Australian
investment entitlements. PPS Reg ister.
Investment entitlements
should be dealt with in (b), (c) & (d) subsection 237(2) has the effect that all assignments of accounts by a
the same manner as grantor, and security interests in accounts held by a grantor, will be governed by the same
financial property. law. Th is will p rovide certainty for third parties contemplat ing taking an assignment of
an account, because it will allow them to determine the law that would have applied to
(c) Clause 237 should any earlier assignment of the account (and therefore any disclosure that might have been
allo w the parties to a made in relation to that earlier assignment).
security agreement to
select a non-Australian (e) The Depart ment notes that this issue is addressed in Item 46 of Schedule 4 of the
law to govern their Personal Property Securities (Consequential A mendments) Act 2009. This item inserts a
security agreement. If new subsection 238(1A) for determin ing the applicable law for the perfection, and effect
the grantor is an of perfection or non-perfection of a PPSA security interest in goods. The applicable law
Australian entity at the would be that of the jurisdiction in wh ich the goods are located at the time it beco mes
time the security necessary to consider the perfection of the PPSA security interest.
interest attaches to the
collateral and the parties
to the security interest This would mean that, in determining whether there is a perfected PPSA security interest
select a law other than in the goods, it would be necessary to apply the law of the place where the goods were
Australian law to apply located at the relevant time, and if necessary to search the PPS Register of that place, and
in circu mstances where not the place where the goods were located when the PPSA security interest attached to
this would not be the goods.
man ifestly contrary to
public policy, This item retains an exception in subsection 238(2) for goods which are about to be
Australian courts should moved between jurisdictions. The law of the jurisdiction to which the goods are moved
permit that law to will apply where it is reasonable to believe that the goods will be moved to the
determine questions of jurisdiction.
validity, perfection and
the effect of perfection The amend ment replaces the existing reference to the reasonable belief of secured party
with an objective test. The effect is that a person with knowledge of all the circu mstances
Ve rsion 6: 10 th March 2010 87 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
and non-perfection. should be able to determine wh ich law will apply to the PPSA security interest, and that
this should not depend on the reasonableness of the secured party‘s belief.
(d) Clause 237(2) should
(f) The Depart ment notes that this issue is addressed in Items 87 and 88 of Schedule 2 of
be deleted. There is no
the Personal Property Securit ies (Co rporations and Other Amend ments) Bill 2010. These
compelling reason for
items clarify that the only accounts that are proceeds that should be exempt fro m the
the exclusions that are
general rule in section 241 are those that do not arise fro m a dealing with the collateral.
provided for in that
This change will mean that accounts that do arise fro m a dealing with the collateral will
clause.
be governed by the same law as originally governed the security interest. It will only be
other accounts that will be governed by the rules as set out in section 239. This will
(e) Clause 238(2) relies on
continue to facilitate transfers of accounts whilst protecting the interests of the secured
the reasonable belief of party who should not find themselves subject to a different law merely because an item of
the secured party and
collateral has been sold with the result being that the proceeds, in the form o f an account,
this is impractical. The
is suddenly governed by a different law.
rule should be changed
to look at the question
of whether objectively it Example
was likely that the
A secured party has a security interest in an apple. The grantor sells the apple on
goods would be moved
credit. The receivable owed to the grantor is an account. The security interest
to a particular
extends to the account as proceeds arising fro m a dealing in the collateral that gave
jurisdiction.
rise to the proceeds. The security interest in the account should be governed by the
Alternatively, the rule
same law that governs the security interest in the apple.
could simp ly be to
apply the law of the
place where the grantor
is located at the time the
security interest
attached (under that
law) to the collateral in
the case where goods
move fro m one
jurisdiction to another.
(f) The Exp lanatory
th
Ve rsion 6: 10 March 2010 88 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Memorandu m states
that the exclusions in
clauses 241(1) and
241(2) for accounts
which are proceeds is
intended to facilitate
transfers of accounts.
To reflect this intention,
only transfers of
accounts that occur
separately from the
transfer of the collateral
that gave rise to the
accounts should be
excluded.
Part 7.2 The complexity reflects the complexity inherent in the subject matter.
The provisions are too
6 Clayton Utz
complex.
233-241
Co mbined four Types of property should Subsection 237(2) is intended to facilitate certainty for 3rd parties (particularly later
237(2) 17
law firms not be quarantined. purchasers) concerning the law governing these transactions.
Bill should outline a clear The Depart ment notes sections 267 and 268 o f the Act.
process for a security
Legal Aid
267-268 11 interest when the holding
Queensland
company goes into
liquidation.
Unsecured creditors can The secured party can protect its position by perfecting its security interest.
267 6 Clayton Utz
receive a windfall gain.
Ve rsion 6: 10 th March 2010 89 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Should not apply to leases, Unsecured creditors are entitled to rely on the register to provide notice of security
bailments or co mmercial interests that would survive the grantor‘s insolvency.
consignments – why
should the interest of the
267 6 Clayton Utz
legal o wner be defeated
where there is no
competing perfected
security interest.
The Depart ment notes that this issue is addressed in Item 110 of Schedule 2 of the
Personal Property Securities (Corporations and Other Amend ments) Act 2010.
The current effect of the legislation is that a security interest that attaches after the event
would not vest in accordance with the section. As a matter of policy, there is no reason
why a security interest that attaches after the event should not vest in the grantor if it is
unperfected.
Co mbined four
Vesting of unperfected
law firms,
security interests on This amend ment would have the effect that an unperfected security interest that attaches
267 17, 18 Australian
insolvency; drafting to the collateral after the event referred to in paragraph 267(1)(a), in accordance with a
Securitisation
problems. security agreement made before that event, would vest in the grantor in the same way that
Foru m
security interests that attach before the relevant time.
Subsection 267A(2) would be included to protect an innocent purchaser of the collateral
and would offer them the same protection as is offered purchasers under the vesting rule
in subsection 267(3).
Insolvency The Depart ment notes that this issue is addressed in Items 107, 108 & 109 of Schedule 2
Note 2 should refer to s267
267 10 Practit ioners of of the Personal Property Securities (Corporations and Other Amend ments) Bill 2010.
of Corporat ion Act.
Australia
Ve rsion 6: 10 th March 2010 90 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Item 107 amends Note 2 to draw attention to the interaction between section 267 of the
PPS Act and both sections 266 and 267 o f the Corporations Act 2001.
Item 108 amends Note 2 to draw attention to the interaction between section 267 of the
PPS Act and Division 2A of Part 5.7B of the Corporations Act 2001, which is inserted by
Part 9 in Schedule 1 of this Act. Th is item co mmences at the registration commencement
time.
Item 109 brings the note into line with the standard note used for this purpose of the PPS
Act.
Unnecessary and should be The provision reflects the policy in relat ion to this matter.
omitted as it expropriates
the property of the secured
267 26 The Victorian Bar party in favour of the
unsecured creditors and
incorporates notions of
reputed ownership.
Turnover trusts not The provision reflects the policy in relat ion to this matter.
Co mbined four
268(2) 17 successfully excluded
law firms
fro m vesting provisions.
Entit lement to damages. Providing co mpensation in all cases would minimise the incentive to register, which
Clause should be wider in would undermine its efficacy and accuracy. The current result reflects the policy choice
covering all circu mstances made to adopt a functional approach to security interests, including those where the
Co mbined four
269 AG 7 where the secured party secured party retains title. Co mpensation in all cases where the secured party had title and
law firms
had title and lost it by the lost it would undermine th is policy choice.
vesting. The Depart ment
has asked why we think
Ve rsion 6: 10 th March 2010 91 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
that the clause should
apply to all circu mstances
where the secured party
has title to the asset and
lost it by the vesting.
However, it is not clear to
us why the clause does not
so apply. Any person who
has their rights vested in
the grantor should be
entitled to compensation.
The only qualification on
that should be that where
the right confiscated
secures another obligation
it should not entitle them
to additional compensation
over and above the other
obligation. As drafted the
section is too narrow and
risks a situation where
property of a kind not
specifically identified is
confiscated without
appropriate compensation
being in place.
Time at which knowledge These provisions now more closely reflect the New Zealand and Saskatchewan
Part 8.6 6 Clayton Utz tested – now unclear in provisions.
many provisions.
Ve rsion 6: 10 th March 2010 92 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
Definition of 'constructive The provision reflects the policy in relat ion to this matter.
297 13 DLA Ph illips Fo x
knowledge'.
Given the importance of Section 297 is based on the existing general law about when a person will have
constructive knowledge knowledge of matters. It is not intended that the Act should seek to further codify these
for the operation of the general law princip les.
Bill, we believe it is
important to clarify when a
person should have to
make enquiries. At the
mo ment, clause 297 is
unclear as to the
circu mstances in which a
person would be deemed
to have constructive
knowledge as this depends
on a view being taken as to
297 AG1 DLA Ph illips Fo x
when enquiries would
ordinarily be made by an
honest and prudent person.
This will lead to litigation
and accordingly the clause
should be modified to refer
to the specific
circu mstances where a
person should make such
enquiries. Alternatively,
regulations should deal
with this matter. See also
our comment belo w on
clause 300.
Ve rsion 6: 10 th March 2010 93 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Clause 299 should apply to An interest in personal property may itself be personal property to which section 299
any transaction where a would apply. For example, a beneficial interest in a motor vehicle is personal property.
person acquires not only
personal property but an
interest in personal
property.
Co mments have been
made that this clause
should apply where a
person acquires not only
299(1)(a) AG1 DLA Ph illips Fo x personal property in fu ll
but an interest in personal
property. Presumab ly, the
policy behind the inclusion
of clause 299 applies
equally to all persons who
acquire an interest in
personal property and not
only a person who
acquires personal property
in a sale and purchase
arrangement.
This clause (and others) Section 299(1)(a) reflects the intended policy effect. The Depart ment would welco me
299(1)(a) 6 Clayton Utz should refer to an interest comment on wh ich provision inappropriately refer to an interest in personal property.
in personal property.
Parties should be on notice Section 300 is based on provision in the Saskatchewan (section 47) and New Zealand
300 AG1 DLA Ph illips Fo x of the contents of the (section 20) PPS legislat ion, wh ich also provide that registration of a financing statement
register. in the registry is not constructive knowledge of its existence or contents to any person.
Ve rsion 6: 10 th March 2010 94 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
In response to Clayton Section 300 has the effect that a person will not have actual or constructive knowledge of
Utz's comments on the data in a PPS registration. It is intended that, for the purposes of Section 297, an
clause 267, the honest and prudent person would not as a matter of usual business practice routinely
Depart ment advises that search the PPS register, as this would undermine the effect of section 300 that a person
'unsecured creditors are does not have actual or constructive knowledge of the data in PPS registration. Before
entitled to rely on the section 297 could apply to confer constructive knowledge of a registration on an honest
register to provide notice and reasonable person, the person would need to have a reason to search the register.
of security interests that
would survive the grantor's One leg islative strategy would be to provide that a purchaser takes the collateral free of
insolvency'. Clause 300 the security interest when they do so without notice of the security interest. The Act
provides that 'a person could then have gone on to deem people to have constructive notice of registrations.
does not have notice, or
actual or constructive The Act avoids the artificiality of deeming by providing direct ly that a purchaser takes
knowledge, about the collateral subject to a registered security interest (see paragraph 32(1)(a)).
existence or contents of a
registration merely The Act also avoids the compliance costs associated with requiring people to search the
because data in the register and obtain a certificate. Whether a person takes free of a registered security
registration is availab le for interest will depend on whether the security interest was registered at the relevant time.
search on the register'. Whether the purchaser incurred the expense of undertaking a search will be irrelevant.
Given the objective of the
reform to provide a single
national register wh ich is
to facilitate dealings with
personal property, and the
clear importance placed on
registration (and its
accuracy), persons dealing
with personal property
(subject to perhaps a
number of exceptions
relating to personal
Ve rsion 6: 10 th March 2010 95 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
property which is dealt
with on financial markets
and consumer property
valued below a part icular
threshold) should be
deemed to have knowledge
of information on the
register. The justification
for such approach is also
highlighted by the ease by
which the register will be
able to be searched.
Alternatively, as
mentioned above,
clause 297 should provide
guidelines or an inclusive
list of part icular
circu mstances in which
searches must be
undertaken. Indeed, this
approach is consistent with
the REVS system in New
South Wales which
provides parties who
search a register and
obtain a REVS certificate
will receive clear t itle to
the vehicle. In the absence
of obtaining such
certificate or purchasing
the vehicle fro m a licensed
dealer, there is no
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guarantee of such title.
As currently drafted clause The Depart ment notes that security agreement is defined broadly to means :
314 states that Chapter 4
only applies in relation to (a) an agreement or act by which a security interest is created, arises or is provided for;
security interests provided or (b) writ ing evidencing such an agreement or act. For reasons associated with section
for by security agreements 51(xxxi.) of the Constitution, it is not possible for the enforcement provisions to apply in
made at or after the relation to security interests that arise under security agreements made before the
registration registration commencement time.
commencement time.
Chapter 4 will in fact also
apply to security interests
created by means other
than by security
314 AG2 Clayton Utz agreements where made at
or after the reg istration
commencement time.
Clause 314 needs to be
expressed in the negative.
That is, it should state that
Chapter 4 does not apply
in relation to security
interests provided for by
security agreements made
prior to the registration
time.
Provisionally registered The Depart ment notes that section 333(1)(b) requires that ‗registrations in that transitional
332 charges should be register with respect to personal property of that class were effect ive immediately before
AG2 Clayton Utz considered to be the time the data was given to the Registrar‘.
effectively registered for
the purposes of clause Paragraph 333(1)(b ) does not require that an effective registration have a particular legal
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332(c) of the PPS Bill. effect, only that the registration is ‗effective‘. While the registration itself is effective, the
registration does not have the effect of registering the charge.
However, the Depart ment considers that a registration that includes the word ‗provisional‘
is effective as a reg istration on the Register of Co mpany Charges. The fact that the
registration is at risk of being deleted in accordance with subsection 265(5) or paragraph
(7)(b) o f the Co rporations Act 2001 does not detract from its effectiveness as a
provisional registration. The registration is effect ive as a provisional registration despite
that fact that the charge is taken not be registered while it includes he word ‗provisional‘
(see Corporations Act 2001, section 265(9)(a)).
This could either be done
by amending the PPS Bill
or by an appropriate
transitional provision for
the Corporations Act. If
ASIC has issued (or could
issue) a notice under
section 265(6)(b) of the
Corporations Act in
332 relation to a provisional
AG2 Clayton Utz registration which does not
relate to stamp duty that
notice should be either
deemed to be issued by the
PPS registrar or actually
issued by the PPS
registrar. A failure to
respond to the notice
should result in the charge
not being considered to be
a migrated security interest
where, as a result of the
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failure to respond, the PPS
registrar cannot complete
registration on the PPS
register. Provisional
registration arising fro m a
stamp duty deficiency is
not relevant under the new
PPS regime.
Even though the ASIC The Depart ment notes that the Registrar‘s capacity to register a financing statement under
register of co mpany subsection 333(2) is confined to cases in which data in a transitional register is given to
charges should be closed the Registrar. The Registrar is unable to register a financing statement on the basis that
fro m the reg istration the admin istrator of a transitional register has taken an admin istrative step prelimin ary to
commencement time, any the registration of the data (without having registered the data).
332 charge documents lodged
AG2 Clayton Utz with ASIC that are
assigned an ASIC
"docimage" number
should also be considered
to be effectively reg istered
for the purposes of clause
332(c) of the PPS Bill.
References to fi xed and The Depart ment notes that fixed and floating charges are addressed in Items 61 & 62 of
floating charges. Part 9.5 Schedule 4 of the Personal Property Securities (Consequential A mend ments) Act 2009.
is appropriate where a law
or a security agreement
Co mbined four Item 61 corrects a drafting error clarify ing that the intended operation of the provisions on
Part 9.5 AG 7 refers to a floating charge
law firms but does not identify the charges and fixed and floating charges extends to all Co mmon wealth legislation.
property over which the
charge is to float. Item 62 item inserts a new paragraph 339(1)(c), which limits the application of the section
However, if a security – ―the charge is a security interest to which this Act applies.‖.
agreement exp ressly
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identifies the property over
which a charge is to float This amend ment ensures that section 339 applies to refe rences to charges only to the
rather than be fixed, we extent that they are security interests.
can think of no good
policy reason why the
statute should re-write the
commercial arrangement
that the parties have
negotiated. Can Part 9.5
be qualified so that it only
applies where the law or
security agreement does
not identify the property
over which the charge is to
float?
The references in clause Subsection 339(2)(b) is intended to address a case when a security agreement made after
339(2)(b) to a t ransfer of commencement uses the expression ‗charge‘ or ‗floating charge‘, and is intended to make
an account or chattel paper it clear that these references do not include a perfected security interest that is provided
are confusing. A perfected for by a transfer of an account or chattel paper.
security interest which is a
339(2) AG2 Clayton Utz transfer of an account or
chattel paper will not, at
general law, be considered
to be a floating charge.
The intention of the clause
should be made clearer.
Section 2 – Comments & Responses by further topics – Al phabetical
Co mbined four Weakening of asset The Act has the intended policy effect. The Depart ment has noted this comment. It
Assets Charges 17
law firms charges and other security. considers that the question should not be whether a particular security is weakened, but
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whether the Act strikes an appropriate balance between compet ing parties.
The PPS Act may need to be amended should the Govern ment decide to imp lement the
Convention and Protocol.
In preparation for the possible ratification of the Convention and Protocol, the definition
Cape Town Whether the bill precludes
of 'aircraft', 'aircraft engine', 'airframe' and 'helicopter' to be prescribed under the PPS
Convention & ratification of the Cape
Regulations will mirror the definit ions contain in the Convention and Protocol. The PPS
Aircraft 3 James Kimpton Town Convention and
Register has also been designed so that the informat ion on security interest over an
Equip ment Aircraft Equip ment
aircraft mirrors the informat ion required for reg istrations on the Cape Town Convention's
Protocol Protocol.
International Reg ister. (see discussions of sections 43,44 and 153 in PPS Regulations -
updated Regulation Paper - October 2009 [DOC 1.22MB]).
We also have the The ‗Describ ing Co llateral paper will not be used as a basis for the PPS Regulations. The
following additional paper was made available in May 2009 to members of the PPS Info rmation Technology
comments in relation to User Group (PPSITUG) the Depart ment has established to assis t informat ion technology
the "Describing Collateral" professionals develop the informat ion technology that will be required to interface with
paper that the Attorney- the Personal Property Securit ies Register. The Depart ment advises against relying on the
General's Depart ment paper for other purposes. The Depart ment notes that it did not circulate the paper outside
Collateral -
AG5 Clayton Utz released in May 2009. We the members of the PPSITUG.
Description
have raised these
comments in this A Discussion Paper on Regulations to be made under the Personal Property Securit ies Act
submission on the basis was published in October 2009.
that we assume that paper
will be the basis of the
PPS Regulat ions:
Collateral - There are a significant This is a drafting issue and we do not consider that it will affect the operation of the PPS
Inconsistent use AG2 Clayton Utz number of places where Act.
of the term "collateral" is incorrectly
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used rather than "personal
property". For examp le,
clause 19(1) states that a
security interest is
enforceable in respect of
collateral only if the
security interest has
attached to the collateral.
In light of the definit ion of
"collateral", the defined
term used in this clause
should be "personal
property".
These references need to
be considered throughout
the PPS Bill.
Equitable and Australian Equitable and legal The Act does not affect the application of other legislation to legal and equitable
legal 18 Securitisation assignment; consistency assignments of receivables.
assignment Foru m with other legislation.
Makes suggestions to The Depart ment has noted this comment.
ensure that the operation
Women's Legal of the register especially
Family Issues 22
Service Victoria protects women and
children fro m family
violence.
Director of Public Requests the ability to be The Depart ment has noted this comment.
Family Issues 24 Prosecutions able to register property
Victoria restraining orders on the
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PPSR.
Fixtures and fittings The Standing Co mmittee of Attorney-General‘s is considering how fixtures and fittings
Australian
Fittings & should be reconsidered by should be addressed by the Act.
12* Institute of Credit
Fixtures the state and territory
Management
governments.
Floating charges - no Negative restrictions do no create a security interest covered by the PPS Act.
Floating
26 The Victorian Bar ability to register negative
Charges
restrictions.
Gu idance Notes In almost all circu mstances The Depart ment has referred this co mment to the Office of Parliamentary Counsel, which
the clauses which are in has provided the following response:
"boxes" simplify the other
provisions of the Bill to an ‗1. The examples listed by Clayton Ut z do not contradict the provisions described;
extent that makes those they are not wrong. They are simply expressed at a higher level of generality than
clauses contradictory to the provisions described. This is the essential nature of an outline.
the remaining clauses in
the Bill. Examp les of 2. OPC would be reluctant to insert an interpretative provision about the effect of the
where this has occurred outline material. It is not our standard practice, and there are many instances on
are as follows: the statute book of outline material that is unsupported by any such provision. It is
AG2 Clayton Utz our view that co mmon sense dictates that the actual rule should take precedence
(a) Clause 3: The third over an outline describing the rule (in the event of inconsistency), and there is no
paragraph refers to need to state this expressly. Again, this is the essential nature of an outline. It
personal property does not prescribe the law; it describes the law.
including " many
different kinds" of 3. The outline material is not included for the benefit of the PPS specialists at Clayton
tangible and intangible Utz. It is included as an aid for a co mmercial lawyer who might not use the PPS
property. In fact, for Act very often.‘
the purposes of the
legislation, personal
property is all tangible
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and intangible property
other than land and
specific exceptions.
The same paragraph
states that "collateral"
is personal property
that is "or is anticipated
to be" subject to a
security interest. This
is not correct. To fall
within the definit ion of
collateral, a security
interest must have
attached to the personal
property or, for limited
purposes, the personal
property must be
described in a PPS
registration. It is not
sufficient that it is
"anticipated to be"
subject to a security
interest.
(b) Clause 9: The last
sentence of clause 9
states that certain
transactions may give
rise to a security
interest even though
such transactions do
not secure payment or
performance of an
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Section/Issues Sub no. Submi tter Issue AGD Comment
obligation. The list
given is inaccurate. It
refers to all
consignments, however
clause 12(3) provides
that it is only interests
of consignors who
delivers goods to a
consignee under a
commercial
consignment that are
security interests
irrespective of whether
those transfers secure
payment or
performance of an
obligation. Also,
clause 9 does not
include reference to the
fact that clause 12(3)
provides for the
interests of a transferee
under a transfer of
chattel paper to be
security interests.
Unlike the NZ legislat ion,
which uses examp les
throughout the PPS
legislation of how the
legislation will apply in a
practical sense, these
"boxed" clauses are of
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Section/Issues Sub no. Submi tter Issue AGD Comment
litt le value and are
confusing.
Accordingly the boxed
clauses should either be
deleted or an interpretation
provision included stating
that in the event of any
inconsistency between a
boxed clause and any other
provision of the
legislation, the other
provision prevails.
Implementation phases The Depart ment has noted this comment.
Implementation Co mbined four
17 insufficient; based on NZ
Phases law firms
experience.
The Depart ment notes that this issue is addressed in Item 70 of Schedule 4 of the Personal
Absolute assignments of
Property Securit ies (Consequential Amend ments) Act 2009. This item amend ment
Insolvency - accounts and chattel paper
Co mbined four expands the exclusion to a security interest of a transferee under a transfer of an account
account or 17 should not vest on
law firms or chattel paper, if the transfer does not secure payment or performance of an obligation.
chattel paper insolvency unless when
This ensures a consistent application of the rule in section 267 to interests that are deemed
they don't secure money.
security interests under subsection 12(3) of the PPS Act.
The Depart ment has noted this comment, and also that the follo wing provisions refer to
Investment Co mbined four Investment entitlements ‗investment entitlements‘: sections 15, 21, 23, 26, 30, 31, 41 42, 49, 51 and 109. The
17
entitlements law firms are absent from Bill Personal Property Securities (Consequential A mendments) Act 2009 added a reference to
‗investment entitlements‘ to the following sections of the Act: sections 6, 26, 32 and 77.
Language of The language of this piece The Depart ment has noted this comment.
AG 6 Phyllis Ray mond
Legislat ion of legislat ion is very clear
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Section/Issues Sub no. Submi tter Issue AGD Comment
and concise.
Query whether Bill The Depart ment will consider the position of mortgage backed securities in the context of
Australian
includes or excludes regulations made under section 8.
Mortgages 18 Securitisation
mortgage backed
Foru m
securitisation.
Suggest making bill The Depart ment has noted this comment.
Australian
Negotiable compatible with other
21 Financial Markets
instruments legislation dealing with
Association
negotiable instruments.
Bill should include powers Section 184 will allow the Reg istrar to address systemic behaviour of the kind mentioned
Patterns of Legal Aid
11 to address pattern of in paragraph 184(1)(a).
Behaviour Queensland
behaviour conduct.
Bill should provide for The Depart ment considers that the Act achieves the intended policy effect.
circu mstances where
Registration - Legal Aid volume of requests to
11
delays Queensland registrar leads to delay for
example, expand EDR
Schemes so they apply.
AG 6 Reference has been made The Depart ment has noted this comment.
to the development of
Regulations. One caution
is not to ties the
Regulations Phyllis Ray mond Regulations to closely to
the Register. Names of
field and screen titles
should never be reference
in the Regulat ions in case
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Section/Issues Sub no. Submi tter Issue AGD Comment
they should change in the
future. This caution comes
fro m encountering this in
past experience with a
Register.
Suggest regulation power The Depart ment notes the regulation making powers in sections 8 and 12.
with capacity to support
Regulations & Australian
substantive modification
Corporations 21 Financial Markets
of the act similar to the
Act Association
Corporations Act 2001
powers.
Co mbined four This will be considered in the course of settling the Regulations.
Repos, credit Repos, credit support
law firms
support annexes, securities loans
annexes, 17 and similar should be
Australian
securities loans excluded fro m scope of
Financial Markets
and similar Bill.
Association
The Depart ment notes that this issue is addressed in Items 15, 16 and 17 of Schedule 3 of
Australian Lack of clarity – impact on
the Personal Property Securit ies (Consequential Amend ments) Act 2009.
Shipping 14 Bankers' security interest over
Association ships.
Issues raised and The Depart ment has noted these comments.
commented on by the
16, and department: ADI accounts;
Professor Tony
Various issue additional consumer goods, inventory
Duggan
comments and equipment; low-value
goods; priority time;
inventory PMSIs and the
Ve rsion 6: 10 th March 2010 108 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
notice requirement; clause
64 process; and collateral.
The Depart ment:
(a) considers that the obligation owed by a person on an unsecured account is not a
security interest for the purposes of the Act;
(b) considers that a custodial does not hold the investment instrument on behalf of
Australian (ie as agent for) the ult imate owner. Rather, the custodian is an ‗investment
Minor draft ing matters at
Various issues 18 Securitisation entitlement intermediary‘ with who m the person holds an ‗investment
p.5.
Foru m entitlement‘ (see section 15).
(c) notes that the 5 business days provided for by section 38(c) is consistent with
periods generally allowed under the Act.
(d) notes that the grantor‘s details for the purposes of section 153 will be considered
in the context of the Regulations.
The Explanatory The Explanatory Memorandum to the PPS Act has been amended to clarify and display a
Memorandu m to the PPSB clear legislative intention that ‗irrigation rights‘ are excluded fro m the operation of the
refers at page 10 to Act.
―tradeable water rights,
water access
Water Rights - entitlements…‖. That
AG3 Deacons reference appears not to
Irrigation
have been updated since
the amend ment to
subparagraph 6(1)(i) of the
Exposure Draft.
At page 15, the
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Section/Issues Sub no. Submi tter Issue AGD Comment
Exp lanatory Memorandum
refers to ―a right under the
general law or
Co mmonwealth or State
and Territory laws wh ich
apply to the control or use
of water‖. This expression
suffers fro m the same
amb iguity as subparagraph
8(1)(i) of the PPSB.
The Explanatory
Memorandu m should be
amended to reflect the
current drafting of the
PPSB and the intention to
exclude irrigation rights
fro m the operation of the
PPSB.
Subparagraph 6(1)(i) of See above.
the Exposure Draft dated
November 2008 excluded
the following water rights
fro m the operation of the
Water Rights - PPSB:
AG3 Deacons
Irrigation
―…a tradeable water right,
or a water access
entitlement, within the
mean ing of the Water Act
2007…‖.
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In the Water Act 2007
(Cth), ―tradeable water
rights‖ include ―irrigation
rights‖.
Therefore, irrigation rights
were clearly excluded
fro m the operation of the
PPSB in the Exposure
Draft.
Water Rights - 3.1 Irrigation rights are See above.
Irrigation rights held by persons
against irrigation
infrastructure operators
under contracts. They are
not granted by or under a
law of the Co mmonwealth,
a State or a Territory.
Therefore, whether
irrigation rights are
AG3 Deacons covered by subparagraph
8(1)(i) of the PPSB
depends on whether
irrigation rights can be
said to be granted ―by or
under the general law‖.
3.2 The exp ression
―general law‖ is defined in
the PPSB to mean ―the
principles and rules of the
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Section/Issues Sub no. Submi tter Issue AGD Comment
common law and equity‖.
3.3 On one view, the law
of contract is part of the
principles and rules of the
common law and equity,
and a party‘s rights under a
contract are enforceable in
accordance with the
principles and rules of the
common law and equity.
Therefore, on this view, an
irrigation right could be
said to be a right under the
general law of contract.
3.4 On the other hand,
however, a contract can
itself be described as a
source of
rights and obligations, and
there are many rules and
principles of the co mmon
law that can be excluded
by a contract. Rights under
the general law and rights
under a contract are
frequently pleaded
separately in the courts.
3.5 Fu rthermore, there are
explicit references
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Section/Issues Sub no. Submi tter Issue AGD Comment
elsewhere in the PPSB to
the term ―contract‖ (for
example, ―close-out
netting contract‖ and
―market netting contract‖
in subparagraph 8(1)(e))
and the term "agreement"
(for examp le, the
definit ions of "commercial
consignment" and
"security agreement").
In addition, the term
"general law" is used
elsewhere in the PPSB to
distinguish from
contractual rights (see
subparagraph 267(3)(a)). If
parliament intends that
irrigation rights be
encompassed by
subparagraph 8(1)(i), it
could use the term
―contract‖ or "agreement",
or avail itself of the
terminology used in the
Water Act 2007 (Cth) as it
did in the Exposure Draft.
The current drafting of the
PPSB could be taken to
mean that water access
licences under the laws of
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Section/Issues Sub no. Submi tter Issue AGD Comment
a State or Territory and
rights directly held under
the general law, such as
riparian rights, are
excluded fro m the
operation of the PPSB, but
contractual rights, such as
irrigation rights, are
included.
3.6 In our opinion, there
are reasonable arguments
on both sides as to whether
the expression ―by or
under the general law‖
includes rights under a
contract. The
position under the PPSB is
significantly less clear than
the position under the
Exposure Draft.
Water Rights - We understand that the See above.
Exclusion purpose of the amend ment
to subparagraph 6(1)(i) of
AG3 Deacons the Exposure Draft, now
contained in subparagraph
8(1)(i) of the PPSB, was to
broaden the scope of the
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Section/Issues Sub no. Submi tter Issue AGD Comment
exclusion, not to reduce it.
5.2 However, as we have
set out in this submission,
one unintended
consequence of the
amend ment to
subparagraph 6(1)(i) of the
Exposure Draft has been to
cast
doubt on whether
irrigation rights are now
excluded fro m the
operation of the PPSB.
5.3 If it is the intended that
irrigation rights be
excluded fro m the
operation of the
PPSB, subparagraph
8(1)(i) should be amended
to express that intention
clearly.
6. Reco mmendations
6.1 We reco mmend that
subparagraph 8(1)(i) of the
PPSB be amended so that
irrigation rights are clearly
excluded fro m the
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Section/Issues Sub no. Submi tter Issue AGD Comment
operation of the PPSB.
6.2 In addit ion, for clarity
and to assist with
interpretation of the PPSB,
we reco mmend that the
Exp lanatory Memorandum
to the PPSB clearly state
that irrigation rights as
defined in the Water Act
2007 (Cth) are excluded
fro m the operation of the
PPSB.
Section 3 – Comments & Responses - Consequenti al Amendments - Corporations Act & Other Legislation
Synchronise The two Bills will be progressed separately through the Parliament.
National
commencement of the bill
Consumer Legal Aid
11 with the Nat ional
Cred it Queensland
Consumer Credit
Protection Bill
Protection Bill.
Corporations The service provisions of the Bill have been drafted for consistency with the Electronic
Insolvency Service of documents;
Act 2001 Transactions Act 1999.
10 Practit ioners consistency with
Australia Corporations Act.
Possible conflict with The Depart ment notes that sections 266 and 267 would be been repealed along with the
Corporations
Australian section 266 o f rest of Chapter 2K fro m the Corporations Act 2001 through Item 18 of Schedule 1 o f the
Act 2001
14 Bankers' Corporations Act– certain Personal Property Securities (Corporations and Other Amend ments) Bill 2010.
Association charges void against
liquidator. This noted, the effect of these two sections largely continues as they have been relocated
Ve rsion 6: 10 th March 2010 116 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
to Chapter 5 of the Corporations Act 2001through new sections 588FL and 588FP
respectively. Sections 588FL and 588FP will be created through Item 183 o f Schedule 1
of the Personal Property Securities (Corporations and Other Amend ments) Bill 2010.
A discussion of these amendments can be found in ‗Closing the Register of Charges under
CA, Chapter 2K‘ in para. 3.1-3.6 of the Corporat ions and Other Amendments Bill 2009 -
Exposure Draft and Co mmentary [DOC 448KB].
Corporations The Depart ment will consider, together with the Depart ment of the Treasury, whether
Act 2001 Clause 266 and 267 Corporations Act 2001 sections 266 and 267 should be relocated to Chapter 5 of
6 Clayton Utz
Corporations Act Corporations Act (though amended to reflect the co mmencement of the PPS Act).
The following is a
summary of the provisions
of Chapter 2K that should
continue to apply after the
registration
commencement time. A ll
other provisions in Chapter
Corporations 2K should not apply,
Act 2001 except to the extent noted
AG2 Clayton Utz above. Other than in
relation to section 266, we
have not provided reasons
why those other sections
should cease to apply (this
is generally self
explanatory).
(a) section 267 will continue to apply for seven years in respect of registrable charges. It
(a) Section 267 should would also continue as section 588FP, wh ich would on ly apply to security interests under
continue to apply but the Corporations Act 2001, (excluding ROT property);
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Section/Issues Sub no. Submi tter Issue AGD Comment
be relocated to Part
(a)
5.7B of the
Corporations Act.(b) We
believe it should apply
only to "charges" (c)
as
in
currently defined (d)the
Corporations Act, not
(e)
the broader concept of
"security interest"(f)
under the PPS Bill.
(g)
For the other types of
interest caught by the
broader concept of
"security interest" the
other voidable
preference provisions
already in Part 5.7B of
the Corporations Act
are sufficient.
(h) (b) section 270 will continue to apply to registrable charges for 7 years after the
(c) Section 270 should Registration Co mmencement Time (except for subsection 270(4) wh ich will cease at the
cease to apply fro m the RCT);
registration (i)
commencement time in
relation to notices(j)
that
should have been (k)
lodged under section
268 for registered(l)
charges before the (m)
registration
commencement time. (n)
As ASIC reg istered(o)
charges will be
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Section/Issues Sub no. Submi tter Issue AGD Comment
migrated to the PPS
register, the provisions
for requiring
corrections to the PPS
register contained in
the PPS Bill should
simp ly apply fro m that
(p)
time (where relevant).
Section 270 could(q)
continue to apply in
relation to a failure to
lodge notice of a
charge created or
assigned under section
263 or 264 before the
registration
commencement time.
(c) section 271 will not apply to registrable charges for 7 years after the RCT but not
(d) Section 271 should thereafter;
apply to all charges
(r)
(within the existing
the
definit ion used in (s)
Corporations Act)
(t)
whether created before
or after the reg istration
(u)
commencement time.
The section should (v)
however again only be
limited to charges as
currently defined in the
Corporations Act, not
the broader security (w)
interests under the PPS
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Section/Issues Sub no. Submi tter Issue AGD Comment
Bill.
(e) Section 272 should (x) (d) section 272 would continue to apply to registrable charges for a period of 7 years after
apply in relation to any the RCT but not thereafter.
lodgements made
under Chapter 2K prior
to the registration
commencement time,
even if this requires
issue of a certificate
under that section after
the registration
commencement time.
Section 266 should be (y) Section 266 will cease to operate after the Registration Co mmencement Time (RCT) but
repealed with effect on and subsection 266(4) would continue to apply to registrable charges which d become void
fro m the reg istration prior to the RCT;
commencement time.
In the case of registrable interests not registered within the 45 day period, secured parties
As the transitional would have a two year temporary perfection period during which they would not be
provisions of the PPS Bill subject to section 267 of the PPSA or sections 266-7 of the Corporations Act 2001.
currently operate, sections
267 to 269 o f the PPS Bill Section 266 would not continue to apply to registrable charges after the registration
will apply to all commencement period, but new section 588Fl would.
transitional security
interests if the grantor or
debtor becomes insolvent.
Under the Corporations
Act provisions (or by
amend ment to the PPS
Bill), this could be
extended to circumstances
where the transitional
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security interest (if it was a
registrable charge) was not
registered under the ASIC
regime and is not
registered on the PPS
register at the time the
grantor enters
administration. That
would give effectively the
same result in relat ion to
that transitional security
interest as if section 266 of
the Corporations Act
(excluding section 266(5)
which is discussed below)
continued to apply. The
areas of concern are:
(a) registrable charges
which are transitional
security interests that
are registered with
ASIC after the 45 day
period fro m creation or
after the other
specified event (where
the registration is
required as a result of
an increase in the
secured money etc)
and which are
migrated to the PPS
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register; and
(b) reg istrable charges that
are transitional
security interests that
are not registered with
ASIC at all but are
registered voluntarily
under the PPS reg ime.
It is not practicable for the
ASIC regime in section
266 to continue to apply in
those 2 circu mstances
listed above. This is
particularly the case for
the securities referred to in
paragraph (b). If (as we
have suggested) the ASIC
register is closed, it will
not be possible for the non
registration with ASIC to
be remedied at all and the
application of section 266
of the Corporations Act
will mean that such a
security will always be
void on the insolvency of
the relevant chargor. If
section 266 does not cease
to apply, the ASIC register
will need to remain open
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indefinitely.
If there is a constitutional
concern with excluding
section 266 o f the
Corporations Act in
relation to the securities
referred to in paragraph
(a), the approach of
allo wing a separate
voluntary registration with
PPS to remedy the pre-
existing default with
registration under the
ASIC regime could be
adopted.
Adopting our suggested
approach (ie, considering
only perfection under the
PPS regime and allowing
perfection under that
regime to "cure" defects
with ASIC reg istration)
will not create a
disincentive to register
under the ASIC regime
prior to the registration
commencement date. A
failure to reg ister will
mean that, if there are
other competing ASIC
registered charges, those
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would take priority under
the transitional
arrangements.
Section 266(5) could
continue to apply in
relation to charges entered
into prior to the
registration
commencement time given
that it is intended to
restrict inappropriate
behaviour. However,
given there is no 45 day
period for registration
under the PPS Bill, it does
not need to apply to
security interests entered
into after the registration
commencement date.
We have considered the
consequential amend ments
that will need to be made
Corporations to the Corporations Act as
Act 2001 a consequence of the PPS
AG2 Clayton Utz
regime. Certain of the
comments we have made
below may be mo re
appropriate for inclusion in
Chapter 9 of the PPS Bill.
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The repeal of Chapter 2K would not apply for a period of seven years after the registration
The Corporations Act, as it
commencement time (except for the requirements in relation to documents).
now stands, should
continue to apply to any
Furthermore, the priority between registrable charges would continue to be governed by
registrable charges that
the provisions in Chapter 2K o f the Corporations Act 2001 indefinitely.
come into existence before
the "registration
commencement time" (as
defined in the PPS Bill) in
Corporations
respect of the period
Act 2001
AG2 Clayton Utz before the registration
commencement time. This
would obviously be
expected (for example, in
the context of court cases
dealing with prio rity
disputes relating to the
period before the
registration
commencement time).
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On and fro m the The existing requirements in relat ion to documents would cease to apply at the
registration registration commencement time
commencement time, no
registration of any
registrable charge or any
Corporations other registration relating
Act 2001 to registrable charges, for
AG2 Clayton Utz
example, increases in
secured liabilit ies under
section 268, should occur
under Chapter 2K of the
Corporations Act. This
will result in a nu mber of
different outcomes:
(a) in relation to These registrations would be migrated to the PPSR with the PPS Act transitional
registrable charges provisions to apply.
executed prior to the
registration
commencement time
that have been fully
Corporations registered (that is,
Act 2001 including any
AG2 Clayton Utz additional registrations
under section 264 or
268) with ASIC either
within o r after the
initial 45 day period
prescribed by the
Corporations Act, this
should be straight
forward (subject to the
Ve rsion 6: 10 th March 2010 126 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
comments below in
relation to provisional
registration and section
266 of the
Corporations Act).
These should be
migrated under the PPS
Bill with the
transitional provisions
in the PPS Bill to
apply; and
(b) in relation to The Depart ment has noted this comment.
registrable charges
executed prior to the
registration
commencement time
that have not been
registered with ASIC,
Corporations
or in respect of which
Act 2001
AG2 Clayton Utz particular registrations
(for examp le under
section 268) have not
occurred within the
prescribed period, the
position is more
complex. These "non-
registered" registrable
charges are of 2 types:
Corporations (i) creation (ie, and
AG2 Clayton Utz will therefore, as
Act 2001
the Corporations
Ve rsion 6: 10 th March 2010 127 of 131
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Personal Property Securities Bill 2009 to 30 September 2009
Section/Issues Sub no. Submi tter Issue AGD Comment
Act currently
stands, be void as
a security interest
as against a
liquidator,
administrator or
deed of company
arrangement
administrator if
not registered at
least 6 months
prior to the
relevant
insolvency event)
or in respect of
which an
additional
registration
required under
Chapter 2K (for
example under
section 268) did
not occur within
the relevant 45 day
period; and
Registrable charges would have a period of t wo years to be registered/ perfected under the
(ii) registrable charges new PPS scheme but they will only have priority fro m the date of perfection. Th is retains
Corporations which, as at the the existing law whereby an unregistered charge loses priority to a registered charge.
Act 2001 registration This would protect those secured parties where the Registration Co mmencement Time
AG2 Clayton Utz commencement interrupts the 45 day registration period after the creation of the security interest. They
date, are not would have a period of t wo years with in wh ich to perfect their registrable charges without
registered (or in the charge vesting in the company.
respect of which a
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Section/Issues Sub no. Submi tter Issue AGD Comment
registrable change
is not registered)
but could have been
registered within 45
days of creation or
the relevant change
but for the fact that
ASIC registration is
no longer possible.
In each case, for the The Depart ment has noted this comment.
reasons outlined below,
we believe that voluntary The Depart ment notes that paragraph 51(xxxi.) o f the Constitution constrains the
Corporations
registration on the PPS Parliament‘s capacity to ‗cure‘ defects in registrations with ASIC where to do so would
Act 2001
AG2 Clayton Utz register of these "non- result in an acquisition of property.
registered" registrable
charges should "cure" any
defects in registration
with ASIC.
A problem arises if a The Depart ment will consider whether Regulations made under Item 8 of the Table in
charge is only section 153 should require a migrated registration to include the time that the data was
provisionally registered at originally registered on the source register.
the registration
Corporations commencement time. The The Depart ment will take these comments into account in considering the transitional
Act 2001 documents required to be arrangements applying to the amendments to the Corporations Act 2001.
AG2 Clayton Utz lodged with ASIC for
registration to be
completed will not be able
to be lodged with ASIC
after the registration
commencement time if the
approach we have
Ve rsion 6: 10 th March 2010 129 of 131
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Section/Issues Sub no. Submi tter Issue AGD Comment
suggested above is
adopted. As the PPS Bill
is currently drafted, it is
not clear whether
provisionally registered
charges will be migrated
security interests. This is
because clause 332(c)
provides that a security
interest can only be a
migrated security interest
where reg istration on the
relevant transitional
register (here, the ASIC
register) was "effective"
immed iately before the
data to be migrated is
given to the PPS reg istrar.
The date and the time that The Depart ment will consider whether Regulations made under Item 8 of the Table in
a charge is taken to have section 153 should require a migrated registration to include the time that the data was
been registered under the originally registered on the source register.
Corporations Act is
relevant under the PPS Bill Security interests migrated to the PPSR would retain the priority that they had under the
Corporations - see in particu lar clause ASIC Register. The PPSR would retain details fro m the ASIC reg ister including original
Act 2001 324(2) of the PPS Bill. registration dates (although the ASIC Register would be retained for seven years as a
AG2 Clayton Utz
This means that the data record of all existing charges).
migrated fro m the ASIC
register to the PPS register
should include details of
the date and time of the
registration of each
registered charge.
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Alternatively, this
informat ion will need to
continue to be available
fro m an ASIC search
(which is the least
preferred approach).
Ve rsion 6: 10 th March 2010 131 of 131
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