On 19 March 2014, the Personal Property Securities Amendment (Deregulatory Measures) Bill 2014 (Cth) (Bill) was introduced into Federal Parliament to remove the provision of the Personal Property Securities Act 2009(Cth) (PPSA) that deems leases of serial-numbered goods of more than 90 days to be a 'PPS lease' – the aim of these amendments primarily being to reduce the costs of compliance with the PPSA for small and medium sized businesses in the leasing industry.

The change will bring the PPSA into alignment with personal property securities (PPS) regimes in other common law countries (such as New Zealand and Canada).

What is a PPS Lease?

The PPS lease was a new concept introduced by the PPSA. A PPS lease is defined as:

  • a lease or bailment of goods for more than one year;
  • a lease or bailment of goods for an indefinite term; or
  • a lease or bailment of serial numbered goods for 90 days or more.

However, a PPS lease does not include arrangements where the lessor or bailor is not regularly engaged in the business of leasing or bailing goods and it only includes bailments where the bailee is paying the bailor.

A PPS lease covers operating leases as well as finance leases. It would include arrangements where equipment or other goods (like scaffolding or construction equipment) are provided as part of a service or in connection with the service and the customer obtains possession of the equipment.

How are PPS Leases treated under the PPSA?

The PPSA currently provides that if a lessor with goods subject to a PPS Lease fails to register its interest on the PPS Register (PPSR), the goods may be deemed by the PPSA to be property of the lessee upon the lessee's insolvency. Therefore, a secured party must register its 'security interest' in order to preserve its priority against the world.

As highlighted above, a lease of serial numbered goods (i.e. goods capable of being described by serial numbers such as motor vehicles, machinery and some types of equipment) are deemed to be PPS Leases where the term of the lease is over 90 days. This shorter period has resulted in significant confusion and expense being incurred and has placed lessors of equipment at considerable risk if goods have been leased to a lessee who subsequently becomes insolvent.

Proposed Amendment

The Bill proposes to remove the provision deeming leases or bailments of serial-numbered goods for 90 days or more to be a PPS lease.

The removal of the provision will mean that the same test will apply to determine whether a lease or bailment of goods is a PPS lease, regardless of whether the goods bear a serial number or not (i.e. only leases deemed to be PPS leases would be those for a term of more than one year or an indefinite term).

The change would only apply in respect of transactions entered into after the enactment of the amendment.

This will result in a reduction in the number of registrations required for leases of serial numbered goods and will provide some protection to small and medium businesses whose customers become insolvent.

Watch this space to find out if the Bill receives Royal Assent.

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