PPS Alert – Good or bad? May 2017 changes to “PPS lease”

30 June 2017

Publications

The phrase “PPS lease” appears in the PPS Act, insolvency laws and many contracts.  Changing its meaning therefore causes a wide range of issues, some of which we look at in this PPS Alert.

We now have 4 different meanings of “PPS lease” which might apply to a “PPS lease” issue.

Businesses (especially those doing business outside of Australia) should review:

  • Contracts, and whether they are still entitled to register, or be registered against, for a “PPS lease”;
  • Procedures and protocols for registration. Existing registrations might even need to be removed;
  • Status as a “secured creditor” and priority over goods, current and future invoices, and
  • Obligations to register/ remove registrations due to their own financier’s requirements.

Many of our clients have already effected changes to deal with these issues.

What did change?

  • Generally, the meaning of “PPS lease” (a) had its “1 year” test changed to “2 years”, and (b) had some leases or bailments for an “indefinite term” removed. This also makes the new meaning unique among countries with similar laws, such as New Zealand and Canada.
  • The changes apply only to leases and bailments of goods which commenced on or after 20 May 2017.

Case Example

ABC hires goods to XYX for an indefinite term.  XYZ pays all rent ($50,000) to ABC, but goes into liquidation within 6 months of the commencement of the lease.

Before the change … ABC has the right to a security interest and registers ($6.80).   It keeps its goods and all rent paid to it as it is a “secured creditor”.

After the changes … ABC has lost the right to a security interest.  Despite being registered, it keeps its goods but must disgorge to the liquidator all rent paid to it, as it is no longer a “secured creditor”.  Also, unlawfully making or maintaining a registration can incur civil penalties (up to $45,000 per registration) plus uncapped damages.

ABC could avoid this changed outcome by a review of their contracts, procedures and protocols.

What did not change?

Businesses will still need to:

  • Consider, if, despite these changes, when and how to register within 20 business days of the date of the relevant agreement due to the insolvency laws, and
  • Register:
    • “in substance” security interests eg sale under retention of title, financing leases, hire purchase or vendor finance terms, and
    • “deemed” security interest under a “commercial consignment” eg goods are consigned for leasing by a consignee to end customers, instead of “on hiring”. This is becoming a common business model for hire businesses to reduce the equipment they keep on hand.

Please contact Peter Mills to discuss your position after these changes.  Contact details are (p) +61 7 3338 7921, email: pmills@tglaw.com.au.