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Wednesday, 2 November 2011
Page: 12636

Mr MATHESON (Macarthur) (16:37): I rise today to support the Personal Property Securities Amendment (Registration Commencement) Bill 2011 and the regime established by the Personal Property Securities Act 2009. The Personal Property Securities Act establishes a national system for regulating personal property and security interests. This will repeal the fragmented and confusing system that currently exists. Central to this new system is a national online electronic register which is to contain registration for personal property and security interests. Parties can seek registration of their interest for a registration application either before or after they have entered into a security agreement or when the security interest has attached to a personal property. Reforms will also introduce uniform interest priority rules and interest enforcement mechanisms which will apply to all personal property and security interests across Australia.

Naturally a reform of this magnitude will have a substantial impact upon commercial dealings in this country. Because of this, I would encourage the government to complement the rollout of these reforms with an education campaign so that businesses, especially small to medium sized businesses, will be able to understand precisely how the reforms will impact upon them and their operations. I am also concerned by the fact that the bill before the House today seeks to delay the commencement of these reforms and that no explanation has been offered as to why such an extension of time is appropriate.

The existing system of Australian personal property securities law involves more than 70 Commonwealth, state and territory acts administered by 30 government agencies. This is problematic for the following reasons. There are different registers for different kinds of debtor, property and forms of securities. Because of this level of particularity, some forms of securities do not have the appropriate register and thus cannot be registered. There are different rules for registering different forms of security. Some registers are electronic while others are paper based. Different registers have different consequences for nonregistration and, in some cases, security interests must be registered in more than one jurisdiction for them to be fully effective in their provision of priority protection for the creditor. There are substantial compliance costs involved in investigating the appropriate register and the different rules which apply to registration of different interests and in registering an interest in numerous jurisdictions.

The fact that these costs exist has deterred businesses from registering their personal property and security interests under the existing voluntary registration system. This practice of not registering their interests exposes businesses to the risks associated with personal property being used as security for subsequent borrowings. If this occurs, businesses as second lenders would not be made aware of any other existing security interests in the property. Furthermore, even if an interest is registered, the second lender would be hard pressed to find any other existing security interests in the property due to the lack of uniformity and organisation under the current system. This situation of uncertainty has substantial implications for businesses, including losing their interest in the property upon a borrower's becoming insolvent and the first lender claiming their superior interest during liquidation.

The presence of these issues prompted the Law Reform Commission to recommend the establishment of a single system that would uniformly regulate personal property security priorities in all Australian jurisdictions. In 2008, this recommendation was considered by the Council of Australian Governments, who supported the idea of a single online national system for the registration and regulation of personal property securities in Australia. COAG advocated that a uniform national system would lead to significant cost savings for business through reduced compliance costs and greater choice and certainty for consumers and businesses who borrow money against secured personal property. The legal profession has echoed this sentiment by conveying that the establishment of a national law supported by a national electronic register would result in substantial efficiency gains, despite the fact that the reforms will introduce major changes to Australian commercial law.

My coalition colleagues and I, particularly the member for Solomon, support the much needed reform of Australia's personal property securities law that the Personal Property Securities Act offers. We agree with the assertions by the Law Reform Commission, COAG and the legal profession of a need to simplify regulation of personal property security interests in Australia. The Personal Property Securities Act regime represents the best way of achieving this. This is because the act condenses the regulation into a national regime which includes a national electronic register for all security interests in personal property, as well as uniform national priority rules and enforcement provisions for personal property interests.

However, I do maintain concerns about the level of education that has been provided to small and medium sized businesses about the potential impact of these reforms. Any potential injustices that could be caused by the reforms to businesses will be due to the lack of adequate education for those who are or will be significantly affected by the new personal property securities system. To avoid any potential injustices, these reforms should be complemented by a comprehensive PPS Act education campaign for these businesses and other relevant stakeholders during the commencement period of the new national system.

I have received correspondence from businesses in my electorate of Macarthur that are engaged in the hire-purchase industry. They are concerned about the impact of these reforms on their business operations. Under the PPS Act regime, businesses engaged in the hire-purchase industry will face the unprecedented risk of losing ownership of their equipment. This is because the ownership on its own no longer guarantees the hire companies' ability to retrieve their equipment if a customer becomes insolvent or inappropriately deals with the equipment in favour of a third party. In order to guarantee their interest of ownership, hire companies will have to register their interests for every item of equipment in accordance with the act's regime.

This represents a significant compliance cost for these companies as they change their inventory management and accounts systems to integrate the personal property security system into their business practices. However, once these companies adapt to the changes introduced, they will be able to reap the benefits of the PPS Act regime. The benefits will include: being able to check for prior interest when purchasing new equipment by checking the personal property and securities electronic register; being able to effectively secure their interests through perfection and registration in the event of a customer's insolvency; and the super priority given to purchase money security interests, or PMSI. This super priority applies only to goods that are inventory, and it allows hire companies to retain priority even if a subsequent interest holder in the inventory equipment perfects their interest before the hire company. This mechanism provides an important and necessary protection for hire-purchase companies as it allows for the new regime to cater to specific needs of the hire-purchase industry.

The Personal Property Securities Amendment (Registration Commencement) Bill that is currently before the House seeks to amend the principal Personal Property Securities Act to allow the Attorney-General to determine that the commencement time for the regime be other than that provided for in the act. Essentially this allows the Attorney-General—who is in this room today—to extend the commencement time of the regime. On 3 May this year, the Attorney-General announced that he anticipated that the national register and the personal property and securities regime would be operational from October this year. However, this has not proven to be the case and he is now seeking to pass a bill which allows him to postpone the commencement of the act. No explanation has been offered by the government for why there is now a need for such an extension of time. My coalition colleagues and I will encourage the government to provide such an explanation to a Senate committee so that the public can remain informed of the process of a substantial reform.

This is especially important to the business community as they need to know when it will be appropriate for them to begin implementing their new policies and procedures so as to ensure effective compliance with the new system. Businesses and industry associations have been trying their hardest during the past two years to seek advice so that they can educate themselves on the potential impacts of these reforms, how they will specifically affect their operations and how they can best ensure their compliance with the new system. By delaying the commencement of these reforms, the government is leaving the business community in limbo yet again. They have been told that the reforms that they have been bracing for for two years will be delayed without being told why. This leaves commerce in this country in a state of uncertainty as the business community wonders whether further changes are going to be made to the system.

I ultimately support the Personal Property Securities Amendment (Registration Commencement) Bill. However, for the reasons I have given I would strongly encourage the government to subject the bill and the reasons for it to a Senate committee for consideration. This is so that any issues associated with the implementation of the regime can be effectively resolved so as to provide the business community with the certainty that will allow them to effectively implement their Personal Property Securities Act compliance plans.