House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Attorney-General, the Honourable Robert Mcclelland Mp

8. Schedule 4 - Personal Property Securities Act 2009

Schedule 4 makes minor technical amendments in response to submissions made to the Senate Legal and Constitutional Affairs Committee's inquiry into the provisions of PPS Bill and subsequently to the Attorney-General's Department. The PPS Bill is being amended through the Consequential Bill, rather than by way of parliamentary amendments, to avoid the need for States who have given a referral of power to give a further referral of power in respect of the amendments.

Commencement

8.1 Items 1-7, 9-35 and 37-64 of Schedule 4 will commence on the later of (1) the start of the day the Consequential Bill receives Royal Assent, and (2) immediately after the commencement of the PPS Act.

8.2 Items 8 and 36 of Schedule 4 will commence on the latest of (1) the start of the day the Consequential Bill receives Royal Assent, (2) immediately after the commencement of the PPS Act, and (3) the start of the day on which section 3 of the National Consumer Credit Protection Act 2009 commences.

Amendment of section 6

Item 1

8.3 Section 6 of the PPS Act sets out the connection that a PPSA security interest (an interest in relation to personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (section 12 of the PPS Act)) in goods (tangible property that is not financial property or investment entitlements (section 10 of the PPS Act)), financial property (chattel paper, currency, a document of title, an investment entitlement or a negotiable instrument (section 10 of the PPS Act)) or intangible property (personal property which is not financial property, goods or an investment entitlement (section 10 of the PPS Act) must have with Australia for the PPS Act to apply.

8.4 Section 6(1) of the PPS Act applies the Act to a security interest in goods or financial property if the location of the goods or property is in Australia or the grantor is an Australian entity.

8.5 Section 6(2) of the PPS Act applies the Act to security interests in intangible property if the grantor is an Australian entity.

8.6 This item inserts a new subsection 6(1A) extending the application of the PPS Act to a PPSA security interest in an 'investment entitlement' if the investment entitlement intermediary is located in Australia or the grantor of the security interest is an Australian entity. An 'investment entitlement' is the rights of a person in whose name an investment entitlement intermediary maintains an investment entitlement account (section 15(1) of the PPS Act). An investment entitlement account is an account to which interests in financial products (within the meaning of the Corporations Act 2001) may be credit or debited, or an account maintained by a CS facility license holder (within the meaning of the Corporations Act) (section 15(7) of the PPS Act).

8.7 This item would align the application of investment entitlements with that of financial property under section 6(1).

Item 2

8.8 Section 6(2)(e) of the PPS Act currently applies the Act to PPSA security interests in intangible property that are created, arise or are provided for by a law of the Commonwealth, a State or a Territory. A law of the Commonwealth, a State or a Territory means, (a) an Act of the Commonwealth, the State or the Territory; or (b) an instrument made under such an Act. For example, it applies the Act to licences created by a law of a State or Territory and intellectual property created by a law of the Commonwealth (section 6(2) of the PPS Act).

8.9 This item amends section 6(2)(e) of the PPS Act so that the Act also applies to a PPSA security interest in intangible property that is created, arises or is provided for under the general law of the Commonwealth, a State or a Territory. The general law of the Commonwealth, a State or a Territory means the principles and rules of the common law and equity (section 10 of the PPS Act). For example, it applies the Act to a right to damages in tort.

Amendment of section 8

Items 3 and 4

8.10 Section 8(1) of the PPS Act provides that the Act does not apply to a number of interests (including interests prescribed by regulations).

8.11 Section 8(1)(d) provides that the PPS Act does not apply to any right of set-off or right of combination of accounts.

8.12 Item 3 adds the words '(within the ordinary meaning of the term "accounts")' to the end of section 8(1)(d). The amendment is necessary because the term 'account' is defined in section 10, while the term 'right of combination of accounts' is a term of art in banking law. 'Right of combination of accounts' generally means the right of a banker to combine several accounts held by a person with a bank (which may have debit or credit balances) into a single account with a single net balance.

8.13 The table in section 8(2) lists a number of interests to which the PPS Act does apply to despite section 8(1).

8.14 Item 4 amends the table in section 8(2) by inserting an Item 6 at the end of the table. This amendment permits regulations to apply provisions of the PPS Act, specified in those regulations, to security interests that would otherwise be excluded from coverage because they are specified in section?8(1).

8.15 The effect will be to allow regulations to be made under section 8(2) providing that the Act does apply (to the extent provided for by the regulations) to interests excluded by section 8(1). In particular, regulations made under section 8(1)(l) of the Act may exclude certain matters from the application of the Act, while the regulations made under section 8(2) would provide limited exceptions to those regulations.

Amendments to section 10

Item 5

8.16 Section 10 is the Dictionary or the interpretative section of the PPS Act.

8.17 This item amends the definition of an ADI Account to an account that is maintained with an approved deposit-taking institution (for example, a banks or credit union) that is payable on demand or at some time in the future. This amendment was required as the previous definition of an ADI Account was defined as a protected account within the meaning of the Banking Act 1959. While the Banking Act definition is apt for specialised prudential regulation purposes, it was criticised as being too complex for use in relation to the PPS Act that will be used by a broad cross-section of the community.

Item 6

8.18 This item fixes a cross-referencing error in the definition of 'Australia' in section 10 of the PPS Act. It replaces the reference to 'subsection 7(4)' with a reference to 'section?7'. This does not substantively alter the definition of Australia in the PPS Act.

Item 7

8.19 This item inserts a definition of 'jurisdiction' into section 10 of the PPS Act. The operation of this definition of jurisdiction works in conjunction with subsection?235(6) of the PPS Act, which is discussed below.

Item 8

8.20 This item inserts a definition for the National Credit Code in the PPS Act. Item 36 of this Schedule omits references the Consumer Credit Code and substitutes references to the National Credit Code proposed under the National Consumer Protection Bill 2009. Items 8 and 36 of the Schedule will commence at the later of the commencement of balance of the Schedule and the commencement of section 3 of the National Consumer Credit Protection Act 2009.

Item 9

8.21 This item amends a punctuation error in the definition of 'registration' in section 10 of the PPS Act. It changes the ';' at the end of paragraph (b) of the definition to of registration to '.' This amendment does not alter the definition of 'registration'.

Amendment to section 12

Item 10

8.22 Section 12 of the PPS Act defines the term 'security interest'.

8.23 Section 75 of the PPS Act recognises that an ADI can take security interests in an ADI account held with the ADI.

8.24 For consistency with section 75, this item inserts a new section 12(4A) providing that an ADI may take a PPSA security interest in an ADI account that is kept with the ADI.

Insertion of subsection 14(2A)

Item 11

8.25 Section 14 of the PPS Act provides the definition of a 'purchase money security interest' (PMSI). A PMSI is a PPSA security interest in collateral created by a seller who secures the obligation to pay the purchase price or a person who provides the value to purchase the collateral.

8.26 Section 14(2)(c) excludes from the definition of PMSI a PPSA security interest in collateral that (at the time of the interest attaching to the collateral) the grantor intends to use predominantly for personal, domestic or household purposes. Section 14(2)(c) is intended to promote that availability of finance to small business, by ensuring that general PPSA security interests are not eroded by later PMSIs granted to acquire personal use assets.

8.27 This item inserts a new subsection 14(2A) having the effect that a security interest in collateral that is required or permitted by the regulations to be described by serial numbered may be a PMSI (regardless of the purpose for which the serial numbered good was acquired). This provision maintains the priority that PPSA security interests in serial number numbered goods (such as motor vehicles) would otherwise have over earlier general PPSA security interests.

Amendment of section 23

Item 12

8.28 Section 23 of the PPS Act provides the Guide Statement for Part 2.3 of the PPS Act (Possession and control of personal property). Possession generally meaning under the Act being possession by one party exclusive of possession by others (section 24 of the PPS Act) and control being variously defined under sections 25, 26, 27, 28 and 29 according to the collateral involved.

8.29 This item corrects an error in the Guide Statement by omitting 'goods in the possession of a common carrier' and substituting it with the phrase 'goods transported by a common carrier'. This correction ensures that the Guide Statement is consistent with section 24(3) of the PPS Act, which sets out when a grantor or debtor to whom goods are transported by a common carrier acquires possession of the goods.

Amendments of section 26

Items 13-15

8.30 Section 26 of the PPS Act establishes when a secured party has control of an investment entitlement that is credited to an investment entitlement account. A secured party would have control of an investment entitlement while there is an agreement between the secured party, the grantor and the intermediary to the effect that any instructions issued by the grantor are subject to approval by the secured party and permitting the secured party to deal in the entitlement without the consent of the grantor (section 26(1) of the PPS Act). The secured party would have control of an investment entitlement even if the person in whose name the intermediary maintains the account retains the right to make substitutions for the instrument, to originate instructions to the issuer or to otherwise deal with the instrument (section 26(2)).

8.31 An 'investment entitlement' is the rights of a person in whose name an investment entitlement intermediary maintains an investment entitlement account (section 15(1) of the PPS Act).

8.32 An investment entitlement intermediary is a person who maintains investment entitlement accounts on behalf of others, or a person who operates securities transfer and settlement facilities under an Australian CS facility licence (within the meaning of the Corporations Act) (section 15(2) of the PPS Act).

8.33 An investment entitlement account is either an account to which interests in financial products may be credited or debited or, in the case of an account maintained by a CS facility licence holder, writing that records holdings and transfers maintained by the CS facility license holder in the course of operating the facility (section?15(7) of the PPS Act).

8.34 These items amend section 26 such that the definition of control in section 26 now reflects a more simplified approach to defining control as provided in the definition of 'control agreement' in Article 1 of the draft 'Convention on Substantive Rules regarding Intermediated Securities'.

8.35 The amended section 26 would define control with the effect that a secured party would have control of an investment entitlement where there is an agreement between the secured party, the grantor and the intermediary to the effect either: (i) that any instructions issued by the grantor to the intermediary are subject to approval by the secured party, or (ii) permitting the secured party to deal in the entitlement without the consent of the grantor in one or more specified circumstances.

Amendment of subsection 32(2)

Item 16

8.36 Section 32(2) of the PPS Act caps the amount available to a secured party enforcing against both collateral and proceeds to the market value of the collateral immediately before the collateral gave rise to the proceeds. This cap does not apply to collateral which is an investment instrument.

8.37 This item amends section 32(2) to extend the exclusion of the cap to investment entitlements.

Amendments of section 39

Items 17 and 18

8.38 Section 39 of the PPS Act deals with the continuous perfection of a PPSA security interest when the collateral is relocated from a foreign jurisdiction to Australia. It allows the period of continuous perfection to begin before the collateral is relocated to Australia. This is important because the priority of the PPSA security interest may depend upon when it began to be continuously perfected.

8.39 Section 39(2) provides the period from which the PPSA security interest in the intangible property or financial property will be taken to have been continuously perfected under section 39(1).

8.40 These items substitute a new subsection 39(2) which allows the period of continuous perfection of the PPSA security interest to start at the beginning of the period during which the PPSA security interest was continuously perfected, registered, recorded or otherwise became effective against third parties under the law of the foreign jurisdiction before the collateral was relocated to Australia.

8.41 These items also insert a new subsection 39(2A) preventing secured parties under subsection 39(2) from taking the benefit of continuous perfection under Australian law where the PPSA security interest was not perfected, registered, recorded or otherwise enforceable under the law of a foreign jurisdiction immediately before relocation to Australia.

Amendment of section 40

Item 19

8.42 Section 40 of the PPS Act provides the rules for continuously perfecting a PPSA security interest in intangible property or financial property which was governed by the law of a foreign jurisdiction but begins to be governed by the law of Australia.

8.43 Subsection 40(2) provides the period from which the security interest in the intangible property or financial property will be taken to have been continuously perfected under subsection 40(1).

8.44 This item substitutes subsections 40(1) and (2) with the effect that the period of continuous perfection of the PPSA security interest in the collateral under subsection 40(1) starts at the beginning of the period during which the PPSA security interest was continuously perfected, registered, recorded or otherwise became effective against third parties under the law of the foreign jurisdiction before the collateral was relocated to Australia.

8.45 This item also inserts a new subsection 40(2A) preventing secured parties from taking the benefit of continuous perfection under the Australian law when the PPSA security interest was not perfected, registered, recorded or otherwise enforceable under the law of a foreign jurisdiction immediately before relocation.

Amendment of section 41

Item 20

8.46 Section 41 of the PPS Act provides the Guide Statement for Part 2.5 of the PPS Act (Taking personal property free of security interests). This Guide Statement provides the rules for when personal property may be bought or leased free of a PPSA security interest.

8.47 Paragraphs (a) to (j) in the Guide Statement are a list of the circumstances and related rules further defined in Part 2.5 where personal property may be bought or leased free of a PPSA security interest. These paragraphs are:

(a)

unperfected security interests;

(b)

personal, domestic or household property;

(c)

serial number defects;

(d)

certain motor vehicles;

(e)

currency;

(f)

taking in the ordinary course of business;

(g)

taking investment interests or entitlements in the ordinary course of trading;

(h)

investment instruments;

(i)

investment entitlements.

(j)

temporarily perfected security interests;

8.48 This item omits the reference to 'certain motor vehicles' and substitutes 'motor vehicles' in order to reflect section 45 of Part 2.5 of the PPS Act, which provides the rules for acquiring motor vehicles free of a PPSA security interest.

8.49 This item also changes the order of paragraphs (b) to (f) to reflect the order these rules are dealt with in Part 2.5. This new order is given as:

(b)

serial number defects;

(c)

motor vehicles;

(d)

taking in the ordinary course of business;

(e)

personal, domestic or household property;

(f)

currency;

8.50 This item also rectifies punctuation errors in paragraphs (i) and (j). The '.' at the end of paragraph (i) is substituted with a ';' and the ';' at the end of paragraph (j) is substituted with a '.'

Amendment of section 43

Item 21

8.51 Section 43 provides that a person who acquires personal property that is subject to an unperfected PPSA security interest acquires it free of the PPSA security interest if they provide 'new value' (meaning value other than value provided to reduce or discharge an earlier debt or liability (section 10 of the PPS Act) and are not a party to the transaction that provides for the PPSA security interest.

8.52 This item amends subsection 43(1) by omitting the words 'new value' and substituting 'value'. This will make the PPS Act more consistent with the approach taken in both the Personal Properties Securities Act (New Zealand) (section 52) and Personal Properties Securities Act (Saskatchewan) (section 20(3)), which both refer to 'value' and not 'new value'.

Amendment of section 44

Item 22

8.53 Section 44 of the PPS Act provides that a buyer or lessee would take property free of a PPSA security interest where (i) the buyer/lessee provides 'new value', (ii) the property is required to be registered by reference to a serial number, and (iii) a search by reference to the serial number immediately before the sale/lease would not have disclosed the PPSA security interest.

8.54 This item amends section 44(1) by removing the reference to new value, and substituting 'value'. This will make the PPS Act more consistent with the approach taken in both the Personal Properties Securities Act (New Zealand) (section 55) and Personal Properties Securities Act (Saskatchewan) (sections 30(6) and (7)), which both refer to 'value' and not 'new value'.

Item 23

8.55 Subsection 44(2) establishes an exception to the taking free rule in subsection 44(1). This exception applies when the purchaser/lessee had actual knowledge that the sale or lease constitutes a breach of the relevant security agreement at the relevant time. Under paragraph 44(3)(a) the relevant time in respect of property bought or leased to be used for personal, domestic or household purposes is the time new value is first given for the sale or lease.

8.56 This item amends paragraph 44(3)(a) so that the timing rule in that provision applies when personal property is bought or leased for new value.

8.57 This item also rectifies a typographical error by amending the heading of section 49 of the PPS Act by omitting 'investment interest' and substituting it with 'investment instrument'.

Amendment of section 51

Item 24

8.58 This item corrects a typographical error by omitting a reference to 'an investment intermediary' and substituting a reference to 'the investment intermediary'.

Amendment of section 55

Item 25

8.59 Section 55 of the PPS Act sets out the default priority rules which apply when the PPS Act provides no other way of determining priority between competing PPSA security interest in the same collateral.

8.60 Subsection 55(4) provides that the priority between two or more PPSA security interests in collateral that are currently perfected is to be determined by the order in which the priority time (subsection 55(5) of the PPS Act) for each PPSA security interest occurs.

8.61 Subsection 55(5) sets out a number of events that can become the 'priority time', subject to the subsection 55(6) requirement that perfection must be continuous. Subsection 55(5) provides that an event listed in paragraphs?55(5)(a) to (c) becomes the 'priority time' if that time occurs earlier than any other such event in relation to a competing PPSA security interest.

8.62 The event in paragraph 55(5)(b) occurs when a secured party, or another person on their behalf, takes possession of the collateral.

8.63 This item amends paragraph 55(5)(b) so that the priority time may also be when the secured party first perfects the security interest by taking control of the collateral.

Item 26

8.64 This item amends a cross-referencing error in the note to section 55 of the PPS Act by omitting the reference to 'subsection?33(5)' and substituting it with a reference to 'subsection 32(5)'.

Amendment of section 61

Item 27

8.65 Section 61 of the PPS Act provides that a secured party may voluntarily subordinate their PPSA security interests in collateral to any other interest in the collateral. This can sometimes be necessary as a prior perfected PPSA security interest can limit further finance being available to a debtor.

8.66 Subsection 61(2) determines how an agreement to subordinate a PPSA security interest may be effective and enforceable.

8.67 This item amends subsection 61(2) by omitting 'An agreement to subordinate a security interest' and replacing it with 'The subordination'. This amendment improves the consistency between subsections 61(1) and 61(2) by acknowledging that a subordination need not be by agreement, but could be by deed or other instrument. The amendment makes the Act more consistent with the approach taken in the Personal Property Security Act 1993 (Saskatchewan) (section 40(1)).

Item 28

8.68 This item amends paragraph 61(2)(b) by omitting 'the agreement' and substituting 'the subordination', consistently with the amendment to subsection 61(1) made by item 33.

Amendment of section 64

Item 29

8.69 Section 64 provides that a secured party with a non-PMSI in an account can claim priority over secured parties with a PMSI in the account as proceeds of inventory. There are two situations, outlined in paragrpahs?64(1)(a) and (b), where a non-PMSI in accounts can have priority over a PMSI.

8.70 Subparagraph 64(1)(b)(i) requires notice to be given under subsection 64(2) to each secured party in account of which a registration is effective at the time the priority interest (the interest to which subsection 64(1) applies) is perfected by registration.

8.71 This item amends the notice provision in subparagraph 64(1)(b)(i) so that the secured party seeking priority will only be required to provide notice to the PMSI holder over whom priority is sought (not to all other PMSI holders).

Amendment of section 73

Item 30

8.72 Section 73 of the PPS Act determines the priority between PPSA security interests under the Act and interests (other than security interests) which may arise under a law of the Commonwealth, a State or a Territory or through operation of the general law.

8.73 This item inserts subsections 73(7), (8) and (9) to allow the Minister to alter the priority of a PPSA security interest relative to an interest in the collateral that has arisen through the operation of the general law (when the interest is not of a kind affected by subsection 73(1)).

Example

A lien over a personal property arises by operation of the general law. The priority of the lien relative to PPSA security interests in the collateral is not determined by subsection 73(1). The priority between the lien and a PPSA security interest in a personal property will be determined in accordance with an instrument made under subsection 73(8), if, and only if, no law of the Commonwealth (other than the PPS Act and that instrument) provides for priority between the lien and the PPSA security interest, the instrument provides that subsection 73(7) applies to the lien, and the lien arises after the instrument comes into effect.

If the priority between the lien and a PPSA security interest in the personal property is not determined in accordance with an instrument made under subsection 73(8), then paragraphs 8(1)(b) and (c), subsection 8(2), paragraph 140(2)(a) and subsection 254(1) will have the effect that priority between the lien and the PPSA security interest will be determined in accordance with the general law.

Amendment of section 77

Items 31-33

8.74 Section 77 of the PPS Act sets out priority rules for security interests in 'accounts' or 'financial property', where the law of the foreign jurisdiction that governs perfection, and the effects of perfection or non-perfection does not provide for the public registration or recording of interests, or a notice relating to the interest.

8.75 These items insert a reference to 'investment entitlement' into subsections 77(1), (2) and (3).

8.76 These amendments increase the scope of section 77 to apply its priority rules to PPSA security interests in investment entitlements.

Amendment of section 79

Item 34

8.77 Section 79 has the effect that collateral may be transferred despite a provision in an agreement (whether or not a security agreement) prohibiting the transfer or declaring a transfer to be a default of the security agreement.

8.78 This item amends subsection 79(1) to confine its effect to prohibitions on the transfer of the collateral that a security agreement. The effect is that third party may take good title to collateral despite a provision in a security agreement prohibiting the transfer. Other provisions of the PPS Act, particularly those in Part 2.5, address whether the person will take the collateral free of the PPSA security interest.

Amendment of section 80

Item 35

8.79 Section 80 of the PPS Act establishes that the rights of a transferee of an account or chattel paper are subject to certain other rights.

8.80 This item amends subsection 80(7) to remove the phrase 'collateral that is'. This amendment would allow subsection 80(7) to apply when the account or chattel paper is not collateral before the transfer.

Amendment of section 119

Item 36

8.81 Subsection 119(1) of the PPS Act sets out how Chapter 4 of the PPS Act (Enforcement of security interests) applies to collateral to which the Consumer Credit Code of a State or Territory applies.

8.82 Subsection 119(2) provides that the regulations made under the PPS Act can provide that when a specified provision of the Consumer Credit Code of a State or Territory has been complied with that a specified provision of the PPS Act it is considered under the PPS Act to have been complied with.

8.83 This item amends both subsections 119(1) and (2) so that instead of referring to the 'Consumer Credit Code of a State or Territory' it refers to the 'National Credit Code'. This amendment ensures that the PPS Act is concordant with the National Credit Code introduced under the National Consumer Protection Bill 2009.

Amendment of sections 128 and 129

Items 37 and 38

8.84 Paragraph 128(2)(b) and subsection 129(1) refer to the term 'commercial property', which is defined under section 10 to mean property other than 'consumer property' (property held by an individual other than property held in the course or furtherance (to any degree) of carrying on an enterprise to which an ABN has been allocated).

8.85 These items amend paragraph 128(2)(b) and subsection 129(1) so that they apply to collateral that is not used predominately for personal, domestic or household purposes (rather than to commercial property). The amendment is intended to align the PPS Act more closely with consumer credit laws.

Amendment of subsection 151(1)

Item 39

8.86 Subsection 151(1) of the PPS Act states that a person must not apply to register a 'financing statement', or a 'financing change statement', in relation to a PPSA security interest unless that the secured party named in the application believes on reasonable grounds that the collateral secures, or will secure, an obligation (including a payment) owed to the secured party named in the application.

8.87 A 'financial statement' means data registered (or that is to be registered) pursuant to an application for registration under subsection 150(1) (section 10 of the PPS Act).

8.88 A 'financing change statement' means data amending a registered financing statement (section 10 of the PPS Act).

8.89 This amendment extends the effect of subsection 151(1) to PPSA security interests of the kinds specified in subsection 12(3) of the PPS Act which do not secure an obligation owed to the secured party named in the application. The amended subsection 151(1) would allow a person to register a financing statement, or financial change statement if they believe on reasonable grounds that the secured party holds, or will hold, a PPSA security interest of the kind mentioned in subsection 12(3).

Amendment of section 157

Item 40

8.90 Section 157 of the PPS Act sets out when a secured party is required to give a verification statement to a grantor. Verifications statement means a written statement in the approved form as defined in section 155 of the PPS Act.

8.91 Subsection 157(4) provides that a contravention of subsection 157(1) constitutes an act or practice involving interference with the privacy of the individual for the purposes of section?13 of the Privacy Act 1988.

8.92 This item amends subsection 157(4) so that a contravention of the Privacy Act will only apply where notice was required to be given to an individual. This amendment is required as only individuals have a right to privacy under the Privacy Act.

Insertion of subsection 171(1)

Item 41

8.93 Section 171 of the PPS Act sets out the criteria by which a person may search the register.

8.94 This item inserts paragraph 171(1)(da) providing for a person to search the register by the unique identifier allocated by the PPS Registrar to a registered financing statement.

Amendment of section 235

Items 42 and 43

8.95 Section 235 of the PPS Act sets out where personal property and persons are located for the purposes of the Act.

8.96 Subsection 235(1) provides that personal property is located in the particular jurisdiction (whether the jurisdiction of Australia or a foreign jurisdiction) in which the personal property is situated.

8.97 Item 42 amends subsection 235(1) by omitting '(whether the jurisdiction of Australia or a foreign jurisdiction)' in order to allow the term 'jurisdiction', as it appears in subsection 235(1) to be affected by subsections 235(6) and (7) proposed to be inserted by item 43.

8.98 Item 43 amends section 235 to insert subsections 235(6) and (7).

8.99 This item introduces a definition of 'jurisdiction' for the purposes of the PPS Act. To avoid confusion between the geographical and legal meaning of the term, the new subsection refers separately to the 'jurisdiction' (the geographical sense) and 'laws of the jurisdiction'.

8.100 In the case of personal property located in Australia, subsection 235(6) provides that the jurisdiction in which the personal property is located is the State or Territory in which it is situated. In the case of a person located in Australia, subsection 235(6) provides that the jurisdiction in which the person is located is the State or Territory in which the individual's principal place of residence is situated.

8.101 In a foreign country with a federal character (that is, one which is divided into territorial units with separate rules of law), Item 43 provides that the jurisdiction in which an item of personal property is located is the territorial unit in which it is situated. In the case of a person located in a foreign country, this item provides that the jurisdiction is the territorial unit in which the individual's principal place of residence is situated (subsection 235(7)).

Example

The State of California is a territorial unit of the United States of America that has its own rules of law as distinct from those that apply to the United States of America generally. If property were situated in a place in California, the effect of subsection 235(7) is that a reference to the laws of the jurisdiction would be a reference to Californian law, and US federal law as it applies in California.

Amendment of section 238

Item 44

8.102 Section 238 provides the main rule for determining which jurisdiction's laws apply to a PPSA security interest in goods. Section 238 currently has the effect that the perfection, and the effect of perfection or non-perfection, of a PPSA security interest in goods will be governed by the law of the place in which they are located when the PPSA security interest attaches to the goods, even if the goods are later moved to another jurisdiction.

8.103 This item amends subsection 238(1) so that only the validity of a PPSA security interest will be governed by the law of the place where the goods were located when the PPSA security interest attached to the goods. When goods are moved to another jurisdiction, the applicable law for validity will continue to be the jurisdiction where the goods were located when the PPSA security interest attached.

Item 45

8.104 This item omits a reference to 'property' and substitutes 'goods', in order to make it clear that subsection 238(1) is concerned only with goods.

Item 46

8.105 This item inserts a new subsection 238(1A) for determining the applicable law for the perfection, and effect of perfection or non-perfection of a PPSA security interest in goods. The applicable law would be the jurisdiction in which the goods are located at the time it becomes necessary to consider the perfection of the PPSA security interest.

8.106 This would mean that, in determining whether there is a perfected PPSA security interest in the goods, it would be necessary to apply the law of the place where the goods were located at the relevant time, and if necessary to search the PPS Register of that place, and not the place where the goods were located when the PPSA security interest attached to the goods.

8.107 This item retains an exception in subsection 238(2) for goods which are about to be moved between jurisdictions. The law of the jurisdiction to which the goods are moved will apply where it is reasonable to believe that the goods will be moved to the jurisdiction.

8.108 The amendment replaces the existing reference to the reasonable belief of a secured party with an objective test. The effect is that a person with knowledge of all the circumstances should be able to determine which law will apply to the PPSA security interest, and that this should not depend on the reasonableness of the secured party's belief.

Item 47

8.109 This item amends a cross-reference consequential upon the insertion of subsection 238(2A).

Items 48 and 49

8.110 Paragraph 238(3)(b) refers to the term 'commercial property', which is defined in section 10 to mean property other than 'consumer property.' Consumer property is property held by an individual other than property held in the course or furtherance (to any degree) of carrying on an enterprise to which an ABN has been allocated. PPSA security interests in commercial property used in more than one jurisdiction is governed by the law of the jurisdiction in which the grantor is located.

8.111 These items amend subsection 238(3) so that instead of applying to 'commercial property', it applies to collateral that is not used predominately for personal, domestic or household purposes (rather than to commercial property). The result is that PPSA security interests in collateral that is used predominately for personal, domestic or household purposes will be governed by the conflict of law rules in subsections 238(1), (1A) and (2).

Item 50

8.112 This item inserts a new subsection 238(4) that recognises the special circumstances of international shipping and shipping registration. Subsection 238(4) has the effect that the perfection and effect of perfection or non-perfection of a PPSA security interest in a ship is governed by the law of the country on whose register of ships the ship is registered (if the ship is registered). Where a ship is registered on a primary, or chartering-out, register and a secondary, or chartering-in, register, subsection 238(4) has the effect that the perfection and effect of perfection or non-perfection of a PPSA security interest in the ship is governed by the law of the primary register. This item is not intended to affect the rule in subsection 238(3) about the law that applies to determine the validity of a PPSA security interest in other goods that are normally moved between jurisdictions.

Amendment of section 239

Item 51

8.113 Subsections 239(4) and (5) of the PPS Act provides the conflict of laws rule for PPSA security interests in an ADI account.

8.114 A PPSA security interest in an ADI account is governed by the law of the jurisdiction which governs the ADI account, except where the parties agree in writing to apply the law of another jurisdiction, providing this would not be manifestly contrary to public policy.

8.115 This item amends subsection 239(5) to require the consent of the relevant ADI before the law of another jurisdiction will govern a PPSA security interest in an ADI account. This amendment recognises that an ADI has an interest in which law applies to PPSA security interests in ADI accounts maintained with it, and accordingly should be given a say in any decision to apply the laws of another jurisdiction.

Amendment of paragraph 265(e)

Item 52

8.116 Section 265 of the PPS Act provides a Guide Statement for Chapter 8 of the Act (Miscellaneous).

8.117 This item amends paragraph 265(e) to insert the words 'and what constitutes knowledge'. This corrects an omission in the Guide statement.

Amendment of paragraph 267(1)(b)

Item 53

8.118 Section 267 provides for the vesting of an unperfected PPSA security interest in the grantor on the grantor's winding up or bankruptcy (subsection 267(2)).

8.119 This item changes the timing references in paragraph 267(1)(b) to the particular time at which the relevant insolvency/bankruptcy event occurs-rather than to the beginning of the day on which it occurs. This ensures that a PPSA security interest does not vest in the grantor despite being perfected on the same day but before the insolvency or bankruptcy event. The effect of this change is that the common law 'zero hour rule' does not apply to the vesting rule in subsection 267(2). This 'zero hour rule' deems an insolvency to begin at the instant after midnight of the day on which the insolvency occurs.

Amendment of subsection 267(2)

Items 54 and 55

8.120 Subsection 267(2) operates to vest certain unperfected PPSA security interests in the grantor, if the grantor becomes bankrupt or is wound up.

8.121 Item 54 amends subsection 267(2) to remove the words 'unless the security interest is unaffected by this section because of section 268'. These words are unnecessary, as section?268 will operates on its own to establish exceptions to subsection 267(2).

8.122 Item 55 inserts a note after subsection 267(2) alerting the reader to the exceptions in section 268.

Amendment of section 268

Items 56 and 57

8.123 Section 268 of the PPS Act sets out certain interests which are unaffected by the vesting rule in subsection 267(2).

8.124 Item 56 replaces the current subsection 268(1). The amendment expands the exclusion to a PPSA security interest of a transferee under a transfer of an account or chattel paper, if the transfer does not secure payment or performance of an obligation. It would not be appropriate to vest a PPSA security interest in the grantor if the secured party has provided full value to the grantor for the transfer of the account or chattel paper. To do so would give the insolvent or bankrupt grantor the benefit of both the value provided on the transfer and also the transferred account or chattel paper.

8.125 Item 57 omits subsection 268(3), which is incorporated into the amended subsection 268(1).

Amendment of subsection 317(1)

Item 58

8.126 This item omits the current words '(when a non-constitutional security interest becomes a constitutional security interest)' and replaces it with '(personal property taken free of security interest when Act starts to operate)'.

8.127 This amendment corrects the incorrect reference to the heading of section 251.

Amendment of subsection 327(1)

Items 59 and 60

8.128 These items correct a drafting error clarifying the scope of the following provisions of section 327.

Amendment of section 338

Item 61

8.129 Section 338 provides the Guide Statement for Part 9.5 of the PPS Act (Charges and fixed and floating charges).

8.130 This item corrects a drafting error clarifying that the intended operation of the provisions on charges and fixed and floating charges extends to all Commonwealth legislation.

Amendment of subsection 339(1)

Item 62

8.131 Section 339 of the PPS Act provides that transactions structured as fixed charges or floating charges would be treated as security interests under the PPS Act.

8.132 This item inserts a new paragraph 339(1)(c), which limits the application of the section by adding a requirement that 'the charge is a security interest to which this Act applies.'

8.133 This amendment ensures that section 339 applies to references to charges only to the extent that they are security interests.

Amendment of subsection 340(5)

Item 63

8.134 This item corrects a drafting error.

Amendment of section 342

Item 64

8.135 Item 64 corrects a drafting error.

Explanation of items