PERSONAL PROPERTY SECURITIES (COMMONWEALTH POWERS) BILL

Second Reading

Second reading.

The Hon. P. HOLLOWAY (Minister for Mineral Resources Development, Minister for Urban Development and Planning, Minister for Small Business) (20:00): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation inserted in Hansard without my reading it.

Leave granted.

The Personal Property Securities (Commonwealth Powers) Bill 2009 and the Commonwealth Personal Property Securities Bill 2009 will result in a reform to the law of personal property securities ('PPS'). The reforms are the result of a lot of work examining existing PPS schemes in overseas jurisdictions, and extensive consultation with stakeholders.

The proposed Bills are a part of the package of reforms approved by the Council of Australian Governments (COAG) aimed at moving towards a seamless national economy through the reform of business and other regulation. The reforms will make it easier for businesses to operate across State and Territory borders.

The Standing Committee of Attorneys-General first considered the concept of reform of the law of personal property securities in 1991, following the publication of an interim report by the Australian Law Reform Commission. As a result of concerns raised by the finance and legal sectors, no further action was taken until after the publication of a favourable report on the New Zealand personal property securities legislation. In early 2005, SCAG Ministers agreed to establish an officers working group to look at reforms in this area, and in April 2007 COAG gave its in-principle support for the establishment of a national system for the registration of personal property securities supported by a referral of legislative power by the States to the Commonwealth.

The Personal Property Securities (Commonwealth Powers) Bill 2009 provides for the referral of power to the Commonwealth Parliament to establish a single national legislative scheme for the regulation and registration of security interests in personal property. Personal property is any form of property that is not land or buildings. It includes intangible property such as contract rights, uncertified shares and intellectual property rights such as trademarks and patents.

The PPS reforms will establish a single, national, publicly accessible electronic personal property securities register to replace the numerous State and Territory registers, and will set out the rules relating to the ordering priorities between competing secured interests in personal property. The reforms will benefit individuals, consumers and businesses by delivering more certain, consistent, less complex and cheaper arrangements for securing loans with personal property. The main cause of high cost under the present system is the existence of multiple regimes and multiple registers. Lenders must search multiple registers to check whether pledged property is subject to a personal property claim. Having one register will reduce costs as lenders will have to pay only one access fee for the information required, and may be able to reduce staff costs in searching and verification processes. The proposed reforms should also encourage lenders to grant loans on the basis of a security interest in personal property, where currently real property is favoured and businesses without holdings of real property are at a disadvantage when seeking debt financing.

The reforms would result in the repeal of the South Australian Bills of Sale Act 1886, Goods Securities Act 1986, Liens on Fruit Act 1923 and Stock Mortgages and Wool Liens Act 1925 and the transfer of the data contained on the registers under those Acts to the PPS register.

In accordance with established practice, the Commonwealth did not introduce its Bill until at least one State had enacted referral legislation. New South Wales agreed to take the lead in introducing referral legislation and on 17 June, 2009, introduced and passed the Personal Property Securities (Commonwealth Powers) Bill 2009. That enabled the Commonwealth Government to introduce the Personal Property Securities Bill 2009 on 24 June 2009, which was passed by the House of Representatives on 16 September 2009.

The referral legislation is underpinned by and reflects the provisions contained in an Intergovernmental Agreement signed on 8 October 2008. The referral legislation provides that statutory licences created under the State and Territory legislation that are transferable, will in-principle, be personal property for the purposes of the PPS legislation, but where State legislation expressly excludes a licence, right, entitlement or authority from the application of the PPS legislation, the State legislation will prevail. There may be sound public policy reasons for preventing any form of security interest being registered against a statutory licence or other entitlement. If it is considered necessary, licences and entitlements will be exempted as part of the consequential amendments to various pieces of State legislation that will be necessary to ensure a seamless transition from the current systems to the PPS regime.

The referral legislation also makes special provision in relation to water rights and fixtures. Although private sector stakeholders were keen to have the PPS Act apply to fixtures, their inclusion might have had an impact on the integrity and indefeasibility of the Torrens title system. The Standing Committee of Attorney-General has agreed to further work being undertaken and to a review of the current law and the future treatment of fixtures as personal property for the purposes of the PPS Bill. Consequently, the referral legislation includes separate commencement provisions in relation to these matters.

Finally, the referral legislation does not refer power regarding State laws that provide for the confiscation, seizure, extinguishment or other forfeiture of property or interests in property, in connection with the enforcement of State laws.

Industry supports the proposed reforms to personal property securities and is working to revise business practices before the commencement of the scheme, which was to be May 2010. In response to industry concerns and Senate Committee recommendations, the Commonwealth has delayed the start-up time to May 2011.

Victoria's Legislative Assembly and the Queensland Parliament passed referral legislation on 17 September 2009. South Australia joins those States and New South Wales in their efforts to progress reforms that will assist business operations throughout Australia and reduce costs and red-tape for businesses and individuals in South Australia.

Explanation of Clauses

1—Name and purpose of Act

This clause sets out the name (also called the short title) and the purpose of the proposed Act.

2—Commencement

This clause provides for the commencement of the provisions of the proposed Act (other than proposed section 6(2), (3) and (4)) on the date of assent to the proposed Act. Proposed section 6(2), (3) and (4) (which make the amendment references to the Commonwealth Parliament) will commence on a day or days appointed by proclamation of the Governor.

3—Definitions

This clause defines certain terms and expressions used in the proposed Act, including the following.

The expression law of the State is defined to mean any Act of the State or any instrument made under such an Act, whenever enacted or made and as in force from time to time. The expression is intended to cover both existing and future Acts and instruments as enacted, made and amended from time to time.

The expression excluded State statutory right is defined to mean a right, entitlement or authority that is granted by or under a law of the State (which is referred to in the proposed Act as a State statutory right) that is declared by that law not to be personal property for the purposes of the Commonwealth PPS Act. As a result of the ambulatory nature of the definition of law of the State referred to above, the expression will extend to declarations that are made in relation to both existing and future State statutory rights.

The expression express amendment is defined to mean the direct amendment of the text of the Commonwealth PPS Act, but as not including enactment of a provision having substantive effect otherwise than as part of the text of that Act. Each of the amendment references is limited to the express amendment of the Commonwealth PPS Act. This ensures that the matters covered by the amendment references cannot be the source of power for other Commonwealth legislation.

The expression personal property is defined to mean property (including a licence) other than—

(a) land; or

(b) an excluded State statutory right.

The term licence is defined to mean either of the following:

(a) a transferable right, entitlement or authority to do 1 or more of the following:

(i) to manufacture, produce, sell, transport or otherwise deal with personal property;

(ii) to provide services;

(iii) to explore for, exploit or use a resource;

(b) a transferable authority to exercise rights comprising intellectual property.

The term licence, however, does not include any excluded State statutory right.

4—Meaning of referred PPS matters

This clause defines the expression referred PPS matters in relation to personal property that is the subject of the different amendment references under the proposed Act. The expression is defined to mean—

(a) the matter of security interests in the personal property; and

(b) without limiting the generality of paragraph (a), each of the following matters:

(i) the recording of security interests, or information with respect to security interests, in the personal property in a register;

(ii) the recording in such a register of any other information with respect to the personal property (whether or not there are any security interests in the personal property);

(iii) the enforcement of security interests in the personal property (including priorities to be given as between security interests, and as between security interests and other interests, in the personal property).

The proposed section, however, excludes from the expression the matter of making provision with respect to personal property or interests in personal property in a manner that excludes or limits the operation of a law of the State to the extent that the law makes provision with respect to—

(a) the creation, holding, transfer, assignment, disposal or forfeiture of a State statutory right; or

(b) limitations, restrictions or prohibitions concerning the kinds of interests that may be created or held in, or the kinds of persons or bodies that may create or hold interests in, a State statutory right; or

(c) without limiting the generality of paragraph (a) or (b)—any of the following matters:

(i) the forfeiture of property or interests in property (or the disposal of forfeited property or interests) in connection with the enforcement of the general law or any law of the State;

(ii) the transfer, by operation of that law of the State, of property or interests in property from any specified person or body to any other specified person or body (whether or not for valuable consideration or a fee or other reward).

Paragraphs (a) and (b) of the above exclusions from the referred PPS matters are intended to limit the power of the Commonwealth Parliament to use an amendment reference to exclude or limit the power of the State to administer, vary and abrogate any State statutory rights (such as licences) that it creates from time to time.

Paragraph (c) of the above exclusions from the referred PPS matters is intended, among other things, to preserve the operation of laws of the State that provide for the confiscation of the proceeds of crimes or for the transfer by or under a law of the State of assets from defunct bodies.

5—Meaning of security interest in personal property

This clause defines the expression security interest in personal property. Generally speaking, a security interest in personal property is an interest in relation to the property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property). However, the proposed section also makes it clear that a security interest may encompass certain other interests provided for by a transaction regardless of whether or not the transaction secures payment or performance of an obligation. An example of such an interest is an interest of a lessee or bailor under a lease or bailment of goods.

6—Initial and amendment references

Clause 6(1) provides for the inclusion of the referred provisions in a Commonwealth Act enacted in the terms, or substantially in the terms, of the tabled text. The expression 'substantially in the terms' of the tabled text will enable minor adjustments to be made to the tabled text.

Clause 6(2) in effect refers matters to the Commonwealth Parliament in connection with the future amendment of the Commonwealth PPS Act concerning security interests in personal property (other than fixtures or water rights).

Clause 6(3) in effect refers matters to the Commonwealth Parliament in connection with the future amendment of the Commonwealth PPS Act concerning security interests in fixtures.

Clause 6(4) in effect refers matters to the Commonwealth Parliament in connection with the future amendment of the Commonwealth PPS Act concerning security interests in transferable water rights (other than excluded State statutory rights).

Clause 6(5) removes a possible argument that 1 of the references might be limited by any of the other references (except as provided by clause 6 (2), which excludes fixtures and water rights from the reference made by that proposed subsection).

Clause 6(6) makes it clear that the reference of a matter has effect only to the extent that the matter is not otherwise within the legislative power of the Commonwealth Parliament and to the extent that the matter is within the legislative power of the State Parliament.

Clause 6(7) makes it clear that the State Parliament envisages that the Commonwealth PPS Act can be amended or affected by Commonwealth legislation enacted in reliance on other powers (though this may be the subject of provisions in the Intergovernmental Agreement that will underpin the scheme) and that instruments made or issued under the Commonwealth PPS Act may affect the operation of that legislation otherwise than by express amendment.

Clause 6(8) specifies the period during which a reference has effect. Each reference will begin when the subsection that makes the reference commences and end when the period of that particular reference is terminated under the proposed Act.

7—Termination of references

This clause deals with the termination of the period of the references specified under clause 6 (namely, the period ending on a day fixed by the Governor by proclamation). The clause enables the periods of all references to be terminated at the same time or only the periods of any or all of the amendment references.

8—Effect of termination of amendment references before initial reference

This clause makes it clear that the separate termination of the period of an amendment reference does not affect laws already in place. Accordingly, the amendment reference continues to have effect to support those laws unless the period of the initial reference is also terminated.

9—Evidence of tabled text

This clause provides for the accuracy of a copy of the tabled text containing the proposed Commonwealth PPS Act to be certified by the Clerk of the Legislative Assembly of New South Wales. Such a certificate is evidence of the accuracy of the tabled text and that the text was in fact tabled as contemplated by the Bill.

The Hon. S.G. WADE (20:00): The opposition supports the bill, which is South Australia's contribution to setting up a national register for personal property securities by referring the state's power in this area to the commonwealth. New South Wales has already passed a bill to this effect. Lending security by personal property is a multibillion dollar industry in Australia, and it is important that the legal framework supporting secured lending is as certain as possible.

Personal property securities are currently covered by over 70 commonwealth, state and territory acts, which are supported by 40 registers. Four of those acts are South Australian: the Bills of Sale Act 1886, the Goods Securities Act 1986, the Liens on Fruit Act 1923, and the Stock Mortgages and Wool Liens Act 1925. A number of these pieces of legislation are convoluted and difficult for businesses and other South Australians to use. An example of that is section 2(1) of the Bills of Sale Act, a South Australian act of 1886, which includes a definition of 'bills of sale'. In that section, which takes half a page of the statute, in a single sentence it uses 227 words to describe a bill of sale. I have a copy of the section, but I hope the council may take my word for it that it is a cumbersome and inaccessible law. In contrast, this bill defines personal property in 19 words:

personal property means property (including a licence) other than—

(a) land; or

(b) an excluded State statutory right.

The federal Attorney-General summarised the scope of personal property in the following terms:

Personal property is any form of property other than land. It includes goods such as cars, machinery, even crops and livestock; financial property, such as currency and letters of credit; and, intangibles, such as intellectual property rights. The act will apply to all transactions which create an interest in personal property that secures a loan or other obligation.

The benefits that come from this bill should produce less risk, less red tape, more consistency and less costly administrative procedures. There will be a single national online PPS register, which will provide a public notice board where users can locate details of collateral that is subject to a security interest. The register will provide online access and benefits through the entire credit life cycle.

Transactions where personal property is used as security for loan will therefore be more certain and consistent, less complex and cheaper. It is hoped by the commonwealth and state ministers responsible that the reforms will enhance Australia's position as a financial hub. Considering that the register is web accessible, it will make it easier for overseas capital markets to assess the risk associated with lending to Australian businesses, and for Australian companies to access international capital markets. Foreseeably in the long run it should reduce the cost of capital.

They are the benefits for business, but at the other end of the spectrum the reform will also make it easier for ordinary Australians to borrow against their property and to make sure property they buy is not encumbered. For example, a used car buyer could access the register to check whether it is free from encumbrance. The commonwealth has suggested that a buyer will merely need to send a simple SMS message to the PPS register to receive an immediate reply. A farmer could use it to obtain agricultural finance for loans to grow next year's crop, to buy seed or fertiliser. A small business providing credit could use the register to see whether the debtor's property is unsecured and available to meet the debt.

It is important to note that this bill will not expand the definition of personal property under South Australian law. Therefore, this bill will not affect what items can be involved in transactions but only which authority handles them. The opposition sees this as a common sense bill that will benefit both South Australian businesses and other South Australians. We support the bill.

The Hon. P. HOLLOWAY (Minister for Mineral Resources Development, Minister for Urban Development and Planning, Minister for Small Business) (20:05): I have spoken to each of the Independent and minor party members, and I understand that they are happy for this bill to proceed. I thank them and the Hon. Mr Wade for his contribution to the debate. As the honourable member said, this is part of a COAG agreement, I think, going back to April 2007. So, it is good that we have finally been able to put it into legislation. I again thank members of the council for their support.

Bill read a second time and taken through its remaining stages.