Australia has started down the path to change its personal property securities law to match USA, Canada and New Zealand. This could lead to a single national electronic scheme affecting all property other than interests in land. The Attorney-General, Philip Ruddock is driving the change. An Options Paper invites your comments by 2 June 2006¹.

How does this affect you?

If Australia continues down this path it will significantly change the way you finance and register security interests in personal property. Many existing cumbersome and overlapping procedures could be eliminated by the ability to register on or check one real time register.

The consultation process

The Paper has been prepared to help decide if there is enough in principle support for this reform. It invites comment on two other main issues.

• Do you think registration should be based on the intent to take security over personal property rather than the form of property?
• What features do you want in a personal property securities register?

Your responses will determine whether there is enough support for progressing the reform.

A series of free seminars² are being held around the country early in May. At these seminars you can discuss:

• the difficulties with the existing law; and
• how these difficulties should be addressed.

The path to here

Personal property securities reform is not new in Australia. But there has been little support for reform until recently. Now the Attorney-General, Philip Ruddock, is urging his state and territory colleagues to embrace the change.

Internationally, personal property securities reform has happened in the USA, Canada and New Zealand. The United Nations Commission on International Trade Law (UNCITRAL) is also developing a relevant guide which will draw on those international experiences.

We understand the reforms in New Zealand have resulted in a more positive experience for lenders, borrowers and their advisers when it comes to security over personal property. This is largely because the centralised electronic register provides more certainty and confidence when conducting searches and lodging registrations.

The case for reform

There are concerns about existing arrangements, including:

• some classes of property are currently unregistrable and this varies between jurisdictions
• businesses whose capital is invested in unregistrable property face a higher cost of capital and so are at a competitive disadvantage
• as new categories of property are devised they fall into a “black hole” in terms of the registration and priority of securities
• the unnecessary additional costs for businesses that operate in more than one jurisdiction
• mandatory and cumbersome registration procedures that rely on form over substance for determining validity
• the reliance on hard copy registration over electronic lodgment
• the absence of comprehensive electronic search facilities.

The benchmarks for a solution

Any proposed solution is required to:

• be comprehensive in its coverage
• provide legal certainty for the parties involved, and
• be efficient by being facilitative, cheaper and centralised.

A lengthy lead time for implementing any reforms would be necessary. Suitable information and education campaigns would also be required. The impact on privacy and the Consumer Credit Code is also relevant.

Treatment of existing securities

A potential bug bear for business is how existing securities would be captured on any national register. New Zealand required existing security holders to re-register. But there are alternatives.

Possible options include arranging for the data on all existing registers to be transferred to the new register. By adopting this option, existing security holders:

• would not need to re-register, and
• would not lose their priority.

Footnotes

¹ Standing Committee of Attorneys-General Options Paper, Attorney-General’s Department Media Release.

² Personal Property Securities Reform: Seminar Series.