Under new Personal Property Security Act (PPSA) amendments hirers or bailors are only required to register a security interest if the initial period, or the equipment is held, for two years or more.
The Personal Property Securities Amendment (PPS Lease) Act 2017 came into effect on 20 May 2017 and is aimed at reducing technicalities associated with short-term and indefinite period loans.
These transactions may be employed where property is used to secure a loan or in a hire arrangement. This allows the owner to retain an interest while the lessee or bailee holds the property. This is particularly important where a lessee or bailee becomes insolvent while holding property as it allows the owner to retain their interest in the property.
In the case of indefinite term loans, registration can be effected when it is believed that that the period will exceed two years,. This can be done either prior to the loan or when it becomes apparent to the lessor. This allows greater flexibility as a hirer can both accommodate an unfixed hire period with the option to register the asset once it falls within the bounds of the legislation.
When addressing the changes the Minister for Justice, Michael Keenan, argued that the former system imposed a costly and administrative burden on small businesses who were at the same time at risk of losing assets if the lessee were to become insolvent. It is felt that that the new arrangement balances the rights of creditors, lenders and purchases while allowing small hiring businesses to operate safely and effectively.
Not all leasing arrangements are captured by the PPSA. For example, the PPSA generally does not apply where an owner is not engaged in the business of leasing or lending goods. You should always seek our advice regarding your specific leasing arrangements because there are exceptions to this general rule, such as the leasing of a vehicle.
The new PPSA amendments will not apply to arrangements entered into prior to 20 May 2017.