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2 Jul 15
Short term leases of serial numbered goods no longer deemed security interests under the PPSA

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WHO SHOULD READ THIS

  • Service providers, contractors and equipment hire businesses who engage in short term hires should take note of these changes.

THINGS YOU NEED TO KNOW

  • Short term leases and short term bailments will generally not give rise to security interests that need to be registered on the PPSR.

WHAT YOU NEED TO DO

  • Review your registration processes for security interests in respect of leasing, hire and bailment agreements.

The Personal Property Securities Amendment (Deregulatory Measures) Act  received assent on 25 June 2015.

This act amends the Personal Property Securities Act 2009 (PPSA) to remove the provision that deemed the lease or bailment of serial numbered goods (such as motor vehicles) for more than 90 days to be a security interest.

This change will benefit businesses hiring equipment as leases, and bailments for a term of less than one year will generally not give rise to security interests and will no longer need to be registered on the Personal Property Securities Register (PPSR).  Service providers and contractors operating in the resources and construction space will also benefit from these changes.

Background
Under the PPSA, security interests arise in personal property under transactions that “in substance” secure payment or performance of obligations.  Some hire arrangements such as equipment finance leases constitute “in substance” security interests.

However, the PPSA also deemed leases or bailments (for value) of serial numbered goods for a term of 90 days or more to be security interests. 

The effect of leases or bailments for more than 90 days being deemed security interests was that hiring and leasing companies were required to register security interests in order to preserve their interests in the hired equipment in the event the business that leased the equipment became insolvent. 

Changes to the PPSA 
The Personal Property Securities Amendment (Deregulatory Measures) Act has removed the provision that deemed leases of serial numbered goods for 90 days or more to be security interests.

Now hires and bailments for a term of less than 12 months will generally not be considered a security interest.  Leases or bailment for less than 12 months will only give rise to a security interest if they “in substance” secure payment or performance of obligations.

These changes are designed to reduce the compliance costs for small and medium equipment hire businesses.

When are the changes to the PPSA effective
The changes will take effect (at the latest) on 25 December 2015, however it is anticipated that these changes will be proclaimed and become effective before this date.

It is important to note that these changes are not retrospective; security interests for leases or bailments of serial numbered goods for a term of more than 90 days entered into before the Personal Property Securities Amendment (Deregulatory Measures) Act takes effect should still be registered.

Moving forwards
Companies should take note that leases or bailments (for value) that:

  • are for a term of more than one year
  • are for an indefinite term
  • are for a term of up to one year that is renewable, or
  • in substance secure payment or performance of obligations (such as finance leases),

should still be registered on the PPSR.
 

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication

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