Personal property securities

This inquiry begain in June 1990, when the method of dealing with personal property securities was both complex and inefficient. A complicated and often overlapping range of laws applied depending on the nature of the security, the type of property the security was taken out over and the class of debtor.These laws were a mixture of common law and statute law and of federal, state and territory law. They differed widely between jurisdictions. This haphazard method of dealing with personal property securities meant that there was no one simple method of determining whether a particular person had a security interest in certain property. Where two or more people had interests in the one property, there was no clear way of determining which person had priority.

The existing system was inefficient for both borrowers and lenders. Because there were a variety of registers used for different types of property, it was often difficult for those considering a transaction involving that property to determine whether a security interest was attached to it. In addition, the priority rules were unnecessarily complicated and lacked clear standards for businesses to adhere to.

A Discussion Paper Personal Property Securities (ALRC DP 52) was released in 1992 and the ALRC’s final report, Personal Property Securities (ALRC Report 64), was tabled in federal parliament on 27 May 1993.

Key recommendations

• A single national system should be established to determine priorities between competing personal property security interests and to provide a means of resolving disputes between security interest holders and third parties who purchased property that was under a security arrangement. In implementing this system, innocent purchasers should be protected as far as possible.
• A functional approach should be used to define the nature of a security—an interest should be classed as a security if, due to a financial arrangement between parties, one of them has a right to deal with the property if the obligation undertaken is not performed.
• This system should be implemented by creating a register of security interests, which would be available for people considering making transactions involving that property.
• Different legislative approaches are needed for the property of companies and of individuals. Securities over the property of companies should be dealt with uniformly through the Corporations Law. The existing Australian Register of Company Charges (ARCC) should be used as the basis for a single national system, involving a register accessible throughout Australia. Securities over the property of natural persons or securities over uniquely identifiable assets would also need to be dealt with in a national system that incorporated existing registers for assets and motor vehicles. The date of registration would provide a basis for determining an interest’s priority, giving a simple and efficient way of resolving disputes.
• Priorities between competing non possessory security interests should be determined according to three basic rules:
  • a registered security interest prevails over an unregistered one;
  • a security interest registered earlier in time prevails over one registered later; and
  • an unregistered but registrable security interest for which value is given earlier in time prevails over an unregistered security interest for which value is given later in time.

Implementation

In ALRC Report 64, the ALRC identified the need for a single national system to determine priorities between competing personal property security interests and to provide a means of resolving disputes between security interest holders and third parties, including a national register of personal property security interests.

The ALRC report was widely criticised by legal practitioners and the finance industry. A substantial portion of the criticism disagreed with the Commission’s approach in two areas: the use of a functional definition to determine exactly what is a security, and the Commission’s decision to depart from Article 9 of the United States Unified Commercial Code, which has provided the basis for legislative reforms in several other countries. Many critics argued that departing from Article 9 was undertaking unnecessary effort and posed an unnecessary risk.

Since the tabling of the ALRC report in 1993, the US law in this area has been revised and similar laws have been introduced in Canada and New Zealand. Support for reform has continued in Australia, in particular a consideration of introducing consistency between the laws of Australia, the US, Canada and New Zealand.

In April 2006, the Standing Committee of Attorneys-General released an Options Paper on the issues, and the Commonwealth Attorney-General’s Department is chairing an officers’ working group to develop proposals for Ministers to consider.

Three Discussion Papers seeking further stakeholder input were published in late 2007.

Personal Property Securities Act 2009 (Cth

On 14 December 2009, the Personal Property Securities Act 2009 (Cth) received Royal Assent. The Act sets out a single national law governing security interests in personal property. The Act also addresses the creation and extinguishment of security interests in personal property and sets out rules for determining priority among competing interests in personal property, and establishes a single national online register of personal property securities (PPS Register).