House of Representatives

Explanatory Memorandum

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

1. Outline

1.1 Personal Property Securities (PPS) reform aims to address the complexity of over 70 Commonwealth, State and Territory laws, common law rules and rules of equity currently governing security interests in personal property. PPS reform would provide a modern and efficient personal property securities framework, which is essential for any modern financial system.

1.2 The Personal Property Securities Bill 2009 was introduced into Parliament on 24 June 2009. By harmonising existing laws, the Bill will reduce the complexity of the existing arrangements for secured lending using personal property as collateral. The Bill will also increase consistency in the arrangements for creating, dealing with and enforcing security interests in personal property.

1.3 The PPS (Consequential Amendments) Bill 2009 (the Consequential Bill) represents the next stage in the Government's harmonisation of Australia's law on secured financing using personal property.

1.4 Personal property is any form of property other than land or buildings. The PPS Bill will apply to transactions which have the effect of securing a payment or other obligation by taking an interest in personal property, regardless of the form of the transaction, the nature of the debtor or the jurisdiction in which the personal property or parties are located. This is known as the functional approach.

1.5 The Consequential Bill will amend 25 Commonwealth Acts that deal with the creation, registration, priority, extinguishment or enforcement of interests in personal property. The amendments proposed by this Bill will also clarify the operation of legislation that will operate concurrently with the PPS Bill. This will facilitate the establishment of a single national regime for personal property securities.

1.6 The Consequential Bill contains measures designed to:

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harmonise language and concepts with the PPS Bill where appropriate;

•

support a seamless transition to the PPS Register to be established by the PPS Bill, including removing provisions providing for the registration of security interests on a separate Commonwealth register;

•

resolve conflicts between the PPS Bill and other Commonwealth legislation that provides for security interests or other interests in personal property;

•

determine the priority between Commonwealth statutory interests in personal property, other than security interests, and security interests in the same property;

•

clarify the rights of secured parties and other parties in particular situations including statutory detention of personal property that may be subject to a security interest; and

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ensure that current rights are preserved on implementation of the amendments.

1.7 The Consequential Bill will not amend the Corporations Act 2001, which will be amended by a separate Bill following a public consultation process.

2. Financial impact statement

The Consequential Bill will not have a financial impact on the operations of Government.

3. Abbreviations

The following abbreviations are used in this explanatory memorandum.

AFMA - Australian Fisheries Management Authority

AMSA - Australian Maritime Safety Authority

ARS - Australian Register of Ships

ASIC - Australian Securities and Investments Commission

Consequential Bill - Personal Property Securities (Consequential Amendments) Bill 2009

IP - Intellectual Property

PPSA or PPS Act - the proposed Personal Property Securities Act 2009

PPS - Personal Property Securities

4. Formal Clauses

Clause 1 - Short title

The Short Title of the Consequential Bill is defined here.

Clause 2 - Commencement

4.2 This clause provides for the commencement of the various proposed amendments. More details are provided in the notes on items relating to the respective Schedules. The provisions of the Consequential Bill will not commence at all if the Personal Property Securities Act 2009 does not commence.

Clause 3 - Schedule(s)

4.3 The amendments made to legislation by the Consequential Bill are set out in five schedules.

Explanation of items

5. Schedule 1 - Fisheries legislation

Schedule 1 amends the Fisheries Management Act 1991 and the Torres Strait Fisheries Act 1984 to ensure that enforcement action taken under that legislation against goods would not be frustrated by a secured party enforcing against the same goods under the PPS Act. This will ensure that the PPS Act does not circumvent the seizure, detention or forfeiture of property by the Commonwealth as a result of contravention of the Fisheries Management Act or Torres Strait Fisheries Act. The amendments also set out the priority between statutory interests and PPS Act security interests. Interests currently registered under the Fisheries Management Act that are PPS Act security interests will be migrated to the PPS Register.

Commencement

5.1 Schedule 1 will commence on the registration commencement time (the PPS Act registration commencement time) within the meaning of the PPS Act. The PPS Act registration commencement time is the first day of the month that is 26 months after the month in which the PPS Bill is given Royal Assent, or an earlier time determined by the Minister. The Government expects the registration commencement time will be in May 2011.

Amendment of the Fisheries Management Act

Definition of PPSA security interest

Item 1

5.2 This item inserts a definition of a 'PPSA security interest' into the interpretation section (subsection 4(1)) of the Fisheries Management Act. A PPSA security interest is a security interest to which the PPS Act applies or a transitional security interest to which Division 4 of Part 9.4 of the PPS Act applies (being an interest subject to the PPS Act as a result of a bankruptcy or insolvency, or where an existing secured party has assented to the PPS Act by voluntarily registering their interest on the PPS Register).

5.3 The definition has been included to clarify references to 'PPSA security interests' in the amendments to the Fisheries Management Act.

Definition of statutory fishing rights option

Items 2-4

5.4 These items provide for technical amendments to the Fisheries Management Act to include a reference in the interpretation section (subsection 4(1)) to the definition of 'statutory fishing rights option' in section 31A.

Registration of PPSA security interests

Items 5, 10 and 17

5.5 These items recognise that from the PPS Act registration commencement time, PPSA security interests will be registered on the PPS Register.

5.6 The amendments will end the requirement for dealings giving rise to a PPSA security interest in a 'statutory fishing rights option' or a 'fishing right', to be registered on the Register of Statutory Fishing Rights, and will consequently mean that such dealings are effective despite not being registered on that register.

5.7 From the PPS Act registration commencement time, interests that are PPSA security interests can be registered on the PPS Register. The requirements to register under section 31F and section 46 of the Fisheries Management Act will cease to apply to PPSA security interests at the PPS Act registration commencement time.

Repeal of subsection 31F(9) and subsection 46(6)

Items 6 and 11

5.8 These items repeal subsection 31F(9) and subsection 46(6) of the Fisheries Management Act. These provisions allow a party to a dealing to lodge with AFMA the document relating to a charge over corporate property required to be lodged with ASIC under section 263 of the Corporations Act 2001, instead of the documents required under the Fisheries Management Act.

5.9 From the PPS Act registration commencement time, a charge over corporate property will be a PPSA security interest and these types of interests will no longer be required to be registered with ASIC.

Priority between statutory fishing rights options or fishing rights and PPSA security interests

Items 7 and 12

5.10 These items set out the priority between (i) section 31F interests in statutory fishing rights options or section 46 interests in fishing rights and (ii) PPSA security interests.

5.11 Interests under section 31F or section 46 will have priority over unperfected PPSA security interests in the same property.

5.12 Where an interest under section 31F or section 46 is registered on the Register of Statutory Fishing Rights before a PPSA security interest in the same property is perfected under the PPS Act, the interest under section 31F or section 46 will have priority over the PPSA security interest.

5.13 Where a PPSA security interest is perfected under the PPS Act before an interest under section 31F or section 46 is registered on the Register of Statutory Fishing Rights, the PPSA security interest will have priority over the interest under section 31F or section 46.

5.14 These items also apply subsection 73(2) of the PPS Act to interests under section 31F and section 46 of the Fisheries Management Act. Applying subsection 73(2) ensures the priority between a section 31F interest or section 46 interest and a security interest in the same property is determined in accordance with the Fisheries Management Act after the PPS Act registration commencement time (under the rules set out in these items).

Dealing with a statutory fishing rights option

Items 8-9

5.15 These items maintain current rights by ensuring that the holder of a statutory fishing rights option may deal with the option subject to any rights or interests in that option that are PPSA security interests or that appear on the Register of Statutory Fishing Rights.

Dealing with a fishing right

Items 13-14

5.16 These items maintain current rights by ensuring that, except where a condition of a fishing right provides otherwise, the holder of a fishing right may deal with the fishing right subject to any rights or interests in the fishing right that are PPSA security interests or that appear on the Register of Statutory Fishing Rights.

Repeal of subsection 50(3)

Items 15 and 18

5.17 These items remove the requirement that AFMA must notify parties with an interest in a fishing right under section 46 of the Fisheries Management Act when a notation is made on the Register of Statutory Fishing Rights in relation to the cancellation, suspension, revocation or rectification of a registration of a fishing right. This reflects the fact there is no similar requirement under the PPS Act.

5.18 The amendment will have a transitional effect to ensure that where the AFMA makes the notation giving rise to the requirement to notify parties before the PPS Act registration commencement time, AFMA must comply with the requirement to notify the relevant parties.

Enforcement

Item 16

5.19 This item ensures that the seizure, detention or forfeiture of a boat or any other property under the Fisheries Management Act has effect despite any enforcement action taken against the property under the PPS Act. Enforcement under the Fisheries Management Act will have effect regardless of whether the seizure, detention or forfeiture under that Act occurred before or after a secured party commences enforcement action under the PPS Act.

Amendment of the Torres Strait Fisheries Act

Definition of PPSA security interest

Item 19

5.20 This item inserts a definition of a 'PPSA security interest' into the interpretation section (subsection 3(1)) of the Torres Strait Fisheries Act. A PPSA security interest is a security interest to which the PPS Act applies or a transitional security interest to which Division 4 of Part 9.4 of the PPS Act applies (being an interest subject to the PPS Act as a result of a bankruptcy or insolvency, or where an existing secured party has assented to the PPS Act by voluntarily registering their interest on the PPS Register).

5.21 The definition has been included to clarify references to 'PPSA security interests' in the amendments to the Torres Strait Fisheries Act.

Enforcement

Item 20

5.22 This item ensures that the seizure, detention or forfeiture of a boat or any other property under the Torres Strait Fisheries Act has effect despite any enforcement action taken against the property under the PPS Act. Enforcement under the Torres Strait Fisheries Act will have effect regardless of whether the seizure, detention or forfeiture under that Act occurred before or after a secured party commences enforcement action under the PPS Act.

Explanation of items

6. Schedule 2 - Intellectual property legislation

Schedule 2 amends the Designs Act 2003, Trade Marks Act 1995 and Patents Act 1990 to remove the effect of security interests registered on the registers established under those Acts. The amendments will continue to allow PPSA security interests to be registered under the relevant intellectual property legislation after the PPS Act registration commencement time, but will provide that such registration may have no effect on the rights of the registered owner.

Schedule 2 also amends the Plant Breeder's Rights Act 1994 to acknowledge that a security interest can be granted over a plant breeder's right.

Commencement

6.1 Schedule 2 will commence on the PPS Act registration commencement time. The PPS Act registration commencement time is the first day of the month that is 26 months after the month in which the PPS Bill is given Royal Assent, or an earlier time determined by the Minister. The Government expect the registration commencement time will be in May 2011.

Amendment of the Designs Act 2003

Definition of a PPSA security interest

Item 1

6.2 This item inserts a definition of a 'PPSA security interest' into the definitions section (section 5) of the Designs Act. The definition includes a security interest to which the PPS Act applies and a transitional security interest to which Division 4 of Part 9.4 of the PPS Act applies.

6.3 The definition has been included to clarify references to PPSA security interests in the amendments to the Designs Act.

Amendment of section 12

Item 2

6.4 Subsection 12(1) of the Designs Act provides that the rights of a registered owner of a design are subject to any rights appearing in the Register of Designs.

6.5 PPSA security interests will continue to be recordable on the Register of Designs. This is to enable such registrants to receive notifications, given an opportunity to be heard, or given the opportunity to make submissions under subsections 50(2), 52(3) and (5), 67(2) and (3), 68(2) and 68(4) of the Designs Act.

6.6 However, item 2 will have the effect that interests that appear on the Register of Designs and meet the definition of a PPSA security interest, will not have any effect on the rights of the registered owner after the PPS Act registration commencement time (see item 7 for the application of this rule). This amendment will encourage registration of PPSA security interests on the PPS Register after the PPS Act registration commencement time and will assist in ensuring that priority issues between PPSA security interests registered on either the Register of Designs or the PPS Register are avoided.

Item 3

6.7 Subsection 12(3) of the Designs Act currently provides that equities, in relation to a registered design may be enforced against the registered owner, except to the prejudice of a purchaser in good faith for value.

6.8 Item 3 will have the effect that the rule in subsection 12(3) will not apply in relation to a PPSA security interest. This is because the PPS Act will govern dealings with PPSA security interests over registered designs, including enforcement and taking a registered design free of an existing PPSA security interest (taking-free). The note to be added further assists readers in identifying the relevant provisions in the PPS Act relating to enforcement and taking-free of an existing PPSA security interest.

Amendment of section 118

Items 4

6.9 Section 118 of the Designs Act currently provides that the Register of Designs is prima facie evidence of any particulars entered in it.

6.10 This item amends section 118 of the Designs Act so that this section does not apply in relation to any particulars recorded in the Register of Designs in relation to a PPSA security interest. This amendment is required because whilst PPSA security interests are registrable on the Register of Designs, such interests will not have any effect on the rights of the registered owner after the PPS Act registration commencement time (see item 2). Consequently, from the PPS Act registration commencement time onwards, the Register of Designs will not be prima facie evidence of PPSA security interests registered in it.

Amendment of section 119

Items 5 and 6

6.11 Section 119 of the Designs Act currently provides that a document, in relation to which particulars have not been entered in the Register of Designs, is not admissible in any proceedings as proof of the title to a design or to an interest in a design, unless circumstances outlined in paragraphs (a) or (b) of section 119 exist.

6.12 These items amend section 119 so that this section would not apply to PPSA security interests. This amendment will allow for the operation of section 174 of the PPS Act, which provides that certain particulars relating to registrations on the PPS Register are admissible as evidence.

Application of amendments

Item 7

6.13 This item clarifies that parties with a dealing, enforcement action, or court proceedings in relation to a registered design (or an interest in a registered design) which have already started (but not yet finished) as at the PPS Act registration commencement time, should be able to rely on the rules which apply prior to the PPS Act registration commencement time.

6.14 A practical application of this amendment may be in relation to an interest holder that has a registration on the Register of Designs prior to the PPS Act registration commencement time. That interest holder would consider that their interests recorded on the Register of Designs would constrain the registered owner's rights and that such recordings would be admissible as evidence. Item 7 will ensure that this understanding remains valid.

Amendments to the Patents Act

Definition of a PPSA security interest

Items 8 and 14

6.15 These items insert the term 'PPSA security interest' into the list of expressions in section 3 for the term to be defined in the Dictionary in Schedule 1 of the Patents Act. The definition includes a security interest to which the PPS Act applies and a transitional security interest to which Division 4 of Part 9.4 of the PPS Act applies.

6.16 The definition has been included to clarify references to 'PPSA security interests' in the amendments to the Patents Act.

Amendment of section 189

Item 9

6.17 Subsection 189(1) of the Patents Act provides that the rights of a registered owner of a patent are subject to any rights appearing in the Register of Patents.

6.18 PPSA security interests will continue to be recordable on the Register of Patents. However, item 9 will have the effect that interests that appear on the Register of Patents, and meet the definition of a PPSA security interest, will not have any effect on the rights of the registered owner after the PPS Act registration commencement time (see item 15 for the application of this rule). This amendment will encourage registration of PPSA security interests on the PPS Register after the PPS Act registration commencement time, and will assist in ensuring that priority issues between PPSA security interest registered on either the Register of Patents and PPS Register are avoided.

Item 10

6.19 Subsection 189(3) of the Patents Act currently provides that equities, in relation to a patent may be enforced against the registered owner, except to the prejudice of a purchaser in good faith for value.

6.20 Item 10 will have the effect that the rule in subsection 189(3) would not apply in relation to a PPSA security interest. This is because the PPS Act will govern dealings with PPSA security interests over patents, including enforcement and taking-free of an existing PPSA security interest. The note to be added further assists readers in identifying the relevant provisions in the PPS Act relating to enforcement and taking-free of an existing PPSA security interest.

Amendment of section 195

Item 11

6.21 Section 195 of the Patents Act currently provides that the Register of Patents is prima facie evidence of any particulars entered in it.

6.22 This item amends section 195 of the Patents Act so that this section will no longer apply to PPSA security interests. This amendment is required because whilst PPSA security interests will continue to be recordable on the Register of Patents, such interests that appear on the Register of Patents will not have any effect on the rights of the registered owner after the PPS Act registration commencement time (see item 9). Consequently, from the PPS Act registration commencement time onwards, the Register of Patents will not provide prima facie evidence when it comes to PPSA security interests over patents.

Amendment of section 196

Items 12-13

6.23 Section 196 of the Patents Act currently provides that a document, of which particulars have not been entered in the Register of Patents, is not admissible to any proceedings as proof of title to a patent or to an interest in a patent, unless circumstances outlined in paragraphs (a) or (b) of section 196 exists.

6.24 These items amend section 196 so that this section would not apply to PPSA security interests. This amendment will allow for the operation of section 174 of the PPS Act, which provides that certain particulars relating to registrations on the PPS Register are admissible as evidence.

Application of amendments

Item 15

6.25 This item clarifies that parties with a dealing, enforcement action, or court proceedings in relation to a patent (or an interest in a patent) which have already started (but not yet finished) as at the PPS Act registration commencement time, should be able to rely on the rules which apply prior to the PPS Act registration commencement time.

6.26 A practical application of this amendment may be in relation to an interest holder that has a registration on the Register of Patents prior to the PPS Act registration commencement time. That interest holder would consider that their interests recorded on the Register of Patents would constrain the registered owner's rights and that such recordings would be admissible as evidence. Item 15 will ensure that this understanding remains valid.

Amendment of the Plant Breeder's Rights Act

Application of the PPS Act

Item 16

6.27 Section 20 of the Plant Breeder's Rights Act provides that the plant breeder's right is personal property.

6.28 This item inserts notes after section 20. Note 1 clarifies that the PPS Act applies to the plant breeder's right, and any licence in the plant breeder's right, as intellectual property. Note 2 informs readers that section 106 of the PPS Act corresponds to subsection 20(3) of the Plant Breeder's Rights Act.

Item 17

6.29 Section 25 of the Plant Breeder's Rights Act provides that the right to apply for the plant breeder's right is personal property.

6.30 This item inserts a note after section 25 informing readers that the PPS Act deals with security interests in personal property, including a right to apply for the plant breeder's right.

6.31 The PPS Act will apply of its own force over personal property. The inclusion of items 16 and 17 should not be used to support the argument that the PPS Act does not apply to personal property provided under certain legislation if similar notes are not inserted in those pieces of legislation.

Amendment of the Trade Marks Act

Definition of a PPSA security interest

Item 18

6.32 This item inserts a definition of a 'PPSA security interest' into the definitions section (section 6) of the Trade Marks Act. The definition includes a security interest to which the PPS Act applies and a transitional security interest to which Division 4 of Part 9.4 of the PPS Act applies.

6.33 The definition has been included to clarify references to PPSA security interests in the amendments to the Trade Marks Act.

Amendment of section 22

Item 19

6.34 Subsection 22(1) provides that the trade mark owner can deal with the trade mark as absolute owner and give good discharges subject only to any rights appearing on the Register of Trade Marks.

6.35 PPSA security interests will continue to be recordable on the Register of Trade Marks. This is to enable such registrants to receive notifications, given an opportunity to be heard, or given the opportunity to make submissions under sections 84(2), 84A(4), 84A (5) and 111 of the Trade Marks Act.

6.36 However, item 19 will have the effect that interests that appear on the Register of Trade Marks and meet the definition of a PPSA security interest, will not have any effect on the rights of the registered owner after the PPS Act registration commencement time (see item 24 for the application of this rule). This amendment will encourage registration of PPSA security interests on the PPS Register after the PPS Act registration commencement time, and will assist in ensuring that priority issues between PPSA security interests registered on either the Register of Trade Marks and the PPS Register are avoided.

Item 20

6.37 Subsection 22(3) of the Trade Marks Act currently provides that equities, in relation to a registered trade mark may be enforced against the registered owner, except to the prejudice of a purchaser in good faith for value.

6.38 This item will have the effect that the rule in subsection 22(3) would not apply in relation to a PPSA security interest. This is because the PPS Act will govern dealings with PPSA security interests over registered trade marks, including enforcement and taking-free of an existing PPSA security interest. The note to be added further assists readers in identifying the relevant provisions in the PPS Act relating to enforcement and taking-free of an existing PPSA security interest.

6.39 It should be noted that although subsection 21(2) is somewhat similar to subsection 22(3) - in that both subsections are concerned with enforcement of equities - the former has not been amended whereas the latter has. The reason for this is that subsection 21(2) recognises that there are different types of equities and that these equities will have their own enforcement rules. This does not contradict the operation of the enforcement rules in the PPS Act.

6.40 If the equity is a PPSA security interest, then under subsection 21(2) the PPS Act enforcement rules will operate in relation to that equity.

6.41 Subsection 22(3) on the other hand authorises enforcement of an equity in a trade mark, subject to a restriction stated in terms of a general principle. The PPS Act adequately authorises the enforcement of PPS Act equities in trade marks, subject to particular rules (not the general principle) that do not necessarily apply in relation to equities that are PPSA security interests. Therefore, equities that are PPSA security interests are expressly excluded from the operation of subsection 22(3) to avoid any inconsistency between subsection 22(3) and the PPS Act.

Amendment of section 113

Item 21

6.42 Section 113 of the Trade Marks Act currently provides that if a person (other than the registered owner) claims to have an interest that is not recordable under Part 10 of the Trade Marks Act 1995 (i.e. not an assignment or transmission of title), the person and the registered owner may together apply to have the interest recorded on the Register of Trade Marks.

6.43 This item amends section 113 so that any person can apply to the Registrar of Trade Marks to have the particulars of a claim to an interest that is not recordable under Part 10 to be recorded in the Register of Trade Marks. The application must contain evidence of the claim asserted.

6.44 This item will allow a security interest holder to apply to have their interest recorded on the Trade Marks Register without the joinder of the registered owner of the trade mark.

Amendment of section 117

Item 22

6.45 Section 117 of the Trade Marks Act currently provides that if a person has applied for the registration of a trade mark, and another person claims to have an interest in, or a right in respect of, the trade mark, they may together apply to the Registrar of Trade Marks for a record to be kept of the other person's claim.

6.46 This item amends section 117 so that any person can apply to the Registrar of Trade Marks to have the particulars of a claim to an interest recorded on the Register of Trade Marks without the joinder of the applicant for the trade mark. Consequently, a security interest holder can apply to have their interest recorded on the Trade Marks Register without the joinder of the person who has applied for the registration of the trade mark.

Amendment of section 210

Item 23

6.47 Section 210 of the Trade Marks Act currently provides that the Register of Trade Marks is prima facie evidence of any particulars entered in it.

6.48 This item amends sections 210 so that this section would no longer apply to PPSA security interests. This amendment is required because whilst PPSA security interests are registrable on the Register of Trade Marks, such interests would not have any effect on the rights of the registered owner after the PPS Act registration commencement time (see item 19). Consequently, from the PPS Act registration commencement time onwards, the Register of Trade Marks will not be prima facie evidence of PPSA security interests registered on it.

Application of amendments

Item 24

6.49 This item clarifies that parties with a dealing, enforcement action, or court proceedings in relation to a registered trade mark (or an interest in a registered trade mark) which have already started (but not yet finished) as at the PPS Act registration commencement time, should be able to rely on the rules which apply prior to the PPS Act registration commencement time.

6.50 A practical application of this amendment may be in relation to an interest holder that has a registration on the Register of Trade Marks prior to the PPS Act registration commencement time. That interest holder would consider that their interests recorded on the Register of Trade Marks would constrain the registered owner's rights and that such recordings would be admissible as evidence. Item 24 would ensure that this understanding remains valid.

Explanation of items

7. Schedule 3 - Maritime legislation

Schedule 3 amends the Shipping Registration Act 1981 to restrict the application of the Act so that it no longer applies to mortgages over ships. The amendments will prevent the registration on the Australian Register of Ships (ARS) of mortgages over ships and the lodgement of caveats in relation to PPSA security interests. Existing mortgages on the ARS will be migrated to the PPS Register. The result will be that the PPS Register will be the sole register for the registration of mortgages and other PPSA security interests in ships. The PPS Act will govern the creation, enforceability and priority of security interest in ships, including mortgages. The power of the Supreme Courts to rectify the ARS will be extended to the PPS Register to ensure the Court's power is not restricted when PPSA security interests currently registered on the ARS are migrated to the PPS Register. Under the Admiralty Act 1988, the Federal Court is able to exercise the same power as the Supreme Courts under the Shipping Registration Act to rectify the ARS. Schedule 3 includes a minor amendment to the Admiralty Act 1988 to enable the Federal Court to also rectify the PPS Register.

This schedule also amends the Marine Navigation Levy Collection Act 1989, Marine Navigation (Regulatory Functions) Levy Collection Act 1991, Protection of the Sea (Civil Liability) Act 1981, Protection of the Sea (Civil Liability for Bunker Oil Pollution Damage) Act 2008, Protection of the Sea (Harmful Anti-fouling Systems) Act 2006, Protection of the Sea (Prevention of Pollution from Ships) Act 1983 and the Protection of the Sea (Shipping Levy Collection) Act 1981 to ensure that enforcement action taken under this legislation against goods will not be frustrated by a secured party enforcing against the same goods under the PPS Act.

Schedule 3 amends the Navigation Act 1912 to ensure that a number of statutory liens and charges under that Act have priority over PPSA security interests while preserving the current priority as between non-PPSA security interests.

Commencement

7.1 Schedule 3 will commence on the PPS Act registration commencement time. The PPS Act registration commencement time is the first day of the month that is 26 months after the month in which the PPS Bill is given Royal Assent, or an earlier time determined by the Minister. The Government expect the registration commencement time will be in May 2011.

Amendment of the Admiralty Act

Amendment of section 32

Item 1

7.2 Section 32 of the Admiralty Act provides that in proceedings in the Federal Court on a proprietary maritime claim, the orders that the court may make include orders of the kind that a court may make under section 59 of the Shipping Registration Act.

7.3 This item inserts a reference to section 59A of the Shipping Registration Act into section 32 of the Admiralty Act. Section 59A will be inserted into the Shipping Registration Act by item 25 of schedule 3. Item 1 is intended to give the Federal Court the same powers with respect to rectification of the PPS Register as section 59A will grant to the State and Territory Supreme Courts.

Amendment of the Marine Navigation Levy Collection Act

Enforcement

Items 2-3

7.4 These items insert a new subsection into section 10 of the Marine Navigation Levy Collection Act. Section 10 provides that an officer of Customs may detain a ship for an unpaid levy, until the levy is paid.

7.5 The amendment will ensure that a secured party does not have the power to enforce its PPSA security interest (by seizing the detained property under section 123 of the PPS Act) while a ship is detained pursuant to section 10 of the Marine Navigation Levy Collection Act.

Amendment of the Marine Navigation (Regulatory Functions) Levy Collection Act

Enforcement

Items 4-5

7.6 These items insert a new subsection into section 9 of the Marine Navigation (Regulatory Functions) Levy Collection Act. Section 9 provides that an officer of Customs may detain a ship for an unpaid levy, until the levy is paid.

7.7 The amendment will ensure that a secured party does not have the power to enforce its PPSA security interest (by seizing the detained property under section 123 of the PPS Act) while a ship is detained pursuant to section 9 of the Marine Navigation (Regulatory Functions) Levy Collection Act.

Amendment of the Navigation Act

Definition of a PPSA security interest

Item 6

7.8 This item inserts a definition of a 'PPSA security interest' into the interpretation section (subsection 6(1)) of the Navigation Act. A PPSA security interest is a security interest to which the PPS Act applies or a transitional security interest to which Division 4 of Part 9.4 of the PPS Act applies (being an interest subject to the PPS Act as a result of a bankruptcy or insolvency, or where an existing secured party has assented to the PPS Act by voluntarily registering their interest on the PPS Register).

7.9 The definition has been included to clarify references to PPSA security interests in the amendments to the Navigation Act.

Amendment of section 83

Items 7-8

7.10 Section 83 recognises and gives statutory effect to the common law position that unpaid seamen have a lien over the ship for their wages. This lien is given priority over other liens by virtue of subsection 83(2).

7.11 These items amend subsection 83(2) of the Navigation Act to clarify the position of the seamen's lien, by continuing its priority over all other liens and giving it priority over all PPSA security interests.

7.12 These items also apply subsection 73(2) of the PPS Act to a lien under section 83 of the Navigation Act. Applying subsection 73(2) ensures the priority between a lien under section 83 and a security interest in the same property is determined in accordance with the Navigation Act after the PPS Act registration commencement time.

Amendment of section 128

Item 9

7.13 Section 128 of the Navigation Act provides that amounts outstanding to an authority in relation to expenses incurred in attending to sick or injured seamen are a charge over the vessel. This item inserts new subsections 128(2A) and 128(2B) of the Act.

7.14 The amendment will clarify the position of the charge, by giving it priority over PPSA security interests.

7.15 These items also apply subsection 73(2) of the PPS Act to a charge under section 128 of the Navigation Act. Applying subsection 73(2) ensures the priority between a charge under section 128 and a security interest in the same property is determined in accordance with the Navigation Act after the PPS Act registration commencement time.

Amendment of section 298

Item 10

7.16 Section 298 of the Navigation Act provides for a charge over a wreck for damage to land occasioned in attending to the wreck, which is recoverable as salvage.

7.17 The amendments will clarify the position of the charge, by giving it priority over PPSA security interests.

7.18 This item applies subsection 73(2) of the PPS Act to a charge under section 298. Applying subsection 73(2) ensures the priority between a charge under section 298 and a security interest in the same property is determined in accordance with the Navigation Act after the PPS Act registration commencement time.

Amendment of the Protection of the Sea (Civil Liability) Act

Enforcement

Item 11

7.19 This item inserts a new subsection into section 22 of the Protection of the Sea (Civil Liability) Act. Where AMSA incurs expenses under the Protection of the Sea (Powers of Intervention) Act 1981, the amount is a charge over the ship (sections 20 and 21 of the Protection of the Sea (Civil Liability) Act). Under section 22, this gives rise to a power to detain a ship until the amount is paid or security for payment of the amount is provided.

7.20 The amendment will ensure that a secured party does not have the power to enforce its security interest (by seizing the detained property under section 123 of the PPS Act) while a ship is detained pursuant to section 22 of the Protection of the Sea (Civil Liability) Act.

Amendment of the Protection of the Sea (Harmful Anti-fouling Systems) Act

Enforcement

Item 12

7.21 This item inserts a new subsection into section 18 of the Protection of the Sea (Harmful Anti-fouling Systems) Act. Section 18 gives AMSA the power to detain a ship if there are reasonable grounds for believing that an offence against this Act has been committed in respect of the ship.

7.22 The amendment will ensure that a secured party does not have the power to enforce its security interest (by seizing the detained property under section 123 of the PPS Act) while a ship is detained pursuant to section 18 of the Protection of the Sea (Harmful Anti-fouling Systems) Act.

Amendment of the Protection of the Sea (Prevention of Pollution from Ships) Act

Enforcement

Item 13

7.23 This item inserts a new subsection into section 27A of the Protection of the Sea (Prevention of Pollution from Ships) Act. Section 27A gives AMSA power to detain a foreign vessel in connection with pollution breaches.

7.24 The amendment will ensure that a secured party does not have the power to enforce its security interest (by seizing the detained property under section 123 of the PPS Act) while a ship is detained pursuant to section 27A of the Protection of the Sea (Prevention of Pollution from Ships) Act.

Amendment of the Protection of the Sea (Shipping Levy Collection) Act

Enforcement

Item 14

7.25 The item inserts a new subsection into section 12 of the Protection of the Sea (Shipping Levy Collection) Act. Section 12 provides that a Collector, within the meaning of the Customs Act 1901, or another authorised person, may detain a ship for an unpaid levy, until the levy is paid.

7.26 The amendment will ensure that a secured party does not have the power to enforce its security interests (by seizing the detained property under section 123 of the PPS Act) while a ship is detained pursuant to section 12 of the Protection of the Sea (Shipping Levy Collection) Act.

Amendment of the Shipping Registration Act

Amendment of subsection 3(1) and heading of Part III

Items 15-17

7.27 These items repeal the definition of mortgage, insert a definition of PPSA security interest and substitute 'mortgages' with 'security interests and other dealings' in the heading of Part III of the Shipping Registration Act.

7.28 The definition of a PPSA security interest inserted by item 16 will include a security interest to which the PPS Act applies but exclude a transitional security interest under the PPS Act. In combination with the relevant operative rules, the exclusion of transitional security interests from the definition will ensure that parties who enter into a security agreement before the PPS Act registration commencement time have the same rights after that time. For example, the right to lodge a caveat under section 47A in respect of their interest.

7.29 The amendments support the repeal of the Shipping Registration Act's comprehensive regime for ship mortgages and align the terminology used by the Act with the functional approach taken by the PPS Act.

Repeal of sections 38 to 44A

Item 18

7.30 Sections 38 to 44A of the Shipping Registration Act establish a comprehensive regime for creation, registration, priority, transfer, enforcement and discharge of ship mortgages.

7.31 Item 18 is intended to repeal the comprehensive ship mortgage regime established by sections 38 to 44A. Ship mortgages will be PPSA security interests, which could be registered on the PPS Register.

Amendment of section 47A

Item 20

7.32 Section 47A of the Shipping Registration Act permits a person who claims an interest in a ship or a share in a ship under an unregistered instrument to lodge a caveat with the Registrar of Ships. The lodging of a caveat forbids entry in the ARS of any instrument relating to any dealing with that ship or share of the ship until notice is given to the caveator.

7.33 This item will have the effect that a person claiming an interest in a ship or share in a ship which is a PPSA security interest may not lodge a caveat with the Registrar of Ships with respect to that interest. By virtue of the definition of PPSA security interest excluding transitional security interests, parties will be entitled to continue to lodge caveats in respect of security interests that arise out of a security agreement created before the PPS Act registration commencement time.

7.34 This item supports the functional approach taken by the PPS Act and the character of the PPS Register, which is intended to be the principal Australian register of security interests. It is intended that a person wishing to protect a PPSA security interest in a ship could protect that interest by perfecting it under the PPS Act.

Amendment of paragraph 47B(1)(a) and (b)

Item 21

7.35 Item 21 removes the requirement on the Registrar of Ships to notify mortgagees in respect of caveats entered on the ARS. From the PPS Act registration commencement time, ship mortgages will be registered on the PPS Register instead of the ARS.

Item 35

7.36 This item will ensure that the amendment under item 21 does not apply, and the obligation on the Registrar of Ships to notify mortgagees continues, where a caveat is lodged on the ARS before the PPS Act registration commencement time.

Amendment of subsection 47D(3)

Item 22

7.37 Except to the extent that a caveat specifies otherwise, subsection 47D(3) of the Shipping Registration Act allows for the Registrar of Ships to enter into the ARS (1) the transmission of a ship, or a share in a ship, to a person if the person becomes entitled to the transmission by operation of law, and (2) a dealing by a mortgagee of a ship or share of a ship, under the mortgage, where the caveator has consented or the caveat has lapsed.

7.38 This item amends that subsection to remove the reference to the Registrar of Ships registering a dealing of a mortgagee.

Amendment of subparagraph 58(1)(b)(i), paragraphs 58(3)(a) and 66(3)(a), subsections 66(4) to (9) and (11), and section 79

Items 23, 24, 26, 27 & 30

6.36 These items remove references to mortgages in the Shipping Registration Act which are redundant because of the repeal of the ship mortgage scheme in sections 38 to 44A.

Insertion of s 59A

Item 25

7.39 With one exception, section 59A is intended to grant substantially the same power to the Supreme Courts of the States and Territories with respect to rectification of the PPS Register as section 59 grants those courts with respect to rectification of the ARS. The amendment will preserve the power of the courts to rectify ship mortgage registrations after those registrations are migrated from the ARS to the PPS Register, and extend their power to include the power to rectify PPS registrations of PPSA security interests in ships which are not ship mortgages.

7.40 Unlike section 59, section 59A is not intended to grant power to the courts to rectify omitted entries where the omitted entry relates to something that was required to be registered. Unlike the Shipping Registration Act, the PPS Act does not impose obligations to register.

Item 36

7.41 This item provides that item 25 applies in relation to a registration under the PPS Act with respect to a security interest regardless of when the security interest arises.

Amendments of section 47, subsections 74(1) and 74(2), section 81 and subsection 82(1) of the Act

Items 19, 28, 29, 31 & 32

7.42 These items remove references to provisions which are repealed by this Schedule or which will not have a relevant affect after the PPS Act registration commencement time (the commencement time for items in this Schedule).

Application of amendments

Item 33

7.43 This item will clarify that items 15, 17 to 19 and 22 to 24 apply in relation to the interest of a mortgagor in a mortgage of a ship, or of a share in a ship, regardless of when the interest arose. This ensures that at the PPS Act registration commencement time, the Shipping Registration Act no longer provides for mortgages over ships.

7.44 Any mortgages that are registered on the ARS before the PPS Act registration commencement time will continue to have the same priority they had between themselves before the PPS Act registration commencement time, subject to Chapter 9 (transitional provisions) of the PPS Act. For example, a registered mortgage in a ship will continue to have priority over a later registered mortgage in the same ship where both mortgages were registered on the ARS before the PPS Act registration commencement time.

7.45 The transitional provisions of the PPS Act can only alter the existing priorities between competing interests where one of the parties becomes bankrupt or insolvent, or where an existing secured party has assented to the PPS Act by voluntarily registering their interests on the PPS Register.

Item 34

7.46 This item will ensure that item 20 does not affect the validity or effectiveness of caveats lodged prior to the PPS Act registration commencement time.

Item 37

7.47 This item provides that the requirement in subsection 66(4) of the Shipping Registration Act (as in force immediately before this Schedule commences at the PPS Act registration commencement time) to give notice to a mortgagee stops applying when this Schedule commences.

Item 38

7.48 This item provides that items 28 and 29 do not apply to breaches of subsections 74(1) and 74(2) (as in force immediately before this Schedule commences at the PPS Act registration commencement time) that occurred before items 28 and 29 commence. The contravention of sections of the Shipping Registration Act listed in subsections 74(1) and 74(2) is an offence under that Act.

Explanation of items

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

9. Schedule 5 - Other legislation

Schedule 5 amends nine pieces of Commonwealth legislation as follows:

Amendments to the Air Services Act 1995 to protect the priority of statutory liens held by Air Services Australia over aircraft and ensure concepts under that Act and the PPS Bill are harmonised.

Amendments to the Bankruptcy Act 1966 will ensure there are no inconsistencies with the PPS Bill. This will be done by aligning the definition of secured creditor in the Bankruptcy Act with the definition of secured party in the PPS Bill. This will mean that secured parties under the PPS Bill are also secured for the purposes of the Bankruptcy Act and that, provided they have perfected their PPSA security interests (interests to which the PPS Bill applies), their PPSA security interest would not vest in a bankrupt estate and they retain the right to enforce without having to prove in the bankruptcy with unsecured creditors.

The amendment to the Commonwealth Inscribed Stock Act 1911 will amend a regulation making power which provides for the establishment of a register of equitable interests in stock so that it does not apply to security interests. The amendment will support the transition to the PPS Register.

The amendment to the Corporations (Aboriginal and Torres Strait Islander) Act 2006 will ensure that charges created under that Act continue to have the same priority following commencement of the PPS Act.

The Health Insurance Act 1973 will be amended to prohibit the creation of a security interest in a right to payment that has been assigned to a medical practitioner.

An amendment to the Insurance Act 1973 will preserve the Federal Court's power to determine the priority of a charge in relation to other interests in the same property.

Amendments to the Privacy Act 1988 will alert readers of that legislation to the fact that unauthorised uses of data under the PPS Bill are 'interferences with privacy' under the Privacy Act and subject to the Privacy Commissioner's powers of investigation.

Amendments to the Quarantine Act 1908 will give priority to statutory interests over PPSA security interests. The amendments will also ensure that enforcement action taken under the Quarantine Act against goods will not be frustrated by a secured party enforcing against the same goods under the PPS Bill.

The Wool International Act 1993 will be amended to support the transition from the register established under that Act to the PPS Register. Charges would no longer be required to be registered on the register established under that Act.

Commencement

9.1 Items 1-18 and 21-50 of Schedule 5 will commence on the PPS Act registration commencement time. The PPS Act registration commencement time is the first day of the month that is 26 months after the month in which the PPS Bill is given Royal Assent, or an earlier time determined by the Minister. The Government expect the registration commencement time will be in May 2011.

9.2 Items 19 and 20 of Schedule 5 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.

Amendment of the Air Services Act

Amendment of subsection 60(3)

Items 1 and 4

9.3 Item 1 removes the term 'floating charge' from paragraph 60(3)(a), as the concept has been superseded by the term 'security interest that has attached to a circulating asset' under the PPS Act.

9.4 Under item 4, this amendment will not apply in relation to a floating charge if the floating charge was created before the PPS Act registration commencement time.

Item 2

9.5 This item adds a note specifying the relevant provision in the PPS Act which deals with security interests that attach to circulating assets.

Item 3

9.6 Section 60 sets out the effect of a statutory lien, including that it applies in spite of any encumbrance in respect of the aircraft, and sets out the priority between competing interests over the aircraft.

9.7 Section 60 provides that a statutory lien is subject to security interests created in the aircraft before the statutory lien is registered, where the security interest covers a debt incurred before that time.

9.8 This item applies subsection 73(2) of the PPS Act to a statutory lien imposed under section 60. Applying subsection 73(2) ensures the priority between the statutory lien and a security interest in the same property is determined in accordance with the Air Services Act after the PPSA registration commencement time.

Amendment of the Bankruptcy Act

Definition of PPSA grantor or debtor

Item 5

9.9 This item inserts a definition of a 'PPSA grantor or debtor' into the interpretation section (subsection 5(1)) of the Bankruptcy Act. This item imports the definition of a PPS Act grantor or debtor from the PPS Act to apply in amended sections 301 and 302.

Definition of PPSA secured party

Item 6

9.10 This item inserts a definition of a 'PPSA secured party' into the interpretation section of the Bankruptcy Act. This item imports the definition of a PPS Act secured party from the PPS Act to apply in amended sections 301 and 302.

Definition of PPSA security agreement

Item 7

9.11 This item inserts a definition of a 'PPSA security agreement' into the interpretation section of the Bankruptcy Act. This item imports the definition of a PPS Act security agreement from the PPS Act to apply in amended sections 301 and 302.

Definition of a PPSA security interest

Item 8

9.12 This item inserts a definition of a 'PPSA security interest' into the interpretation section of the Bankruptcy Act. The definition of a PPSA security interest in this item will include a security interest to which the PPS Act applies but excludes a transitional security interest under the PPS Act. This item imports the definition of a PPS Act security interest from the PPS Act to apply in amended sections 301 and 302.

Definition of a secured creditor

Item 9

9.13 This item amends the definition of a 'secured creditor' in the interpretation section of the Bankruptcy Act. The definition of secured creditor is amended to include secured parties under the PPS Act who have perfected their security interests and also creditors who are not secured parties under the PPS Act (this will include future holders of charges in land).

9.14 The definition of a secured party under the PPS Act means the holder of an interest in personal property (excluding land) provided by any of the following transactions which in substance secure the payment or performance of an obligation: a fixed charge; a floating charge; a chattel mortgage; a conditional sale agreement; a hire purchase agreement; a pledge; a trust receipt; a consignment; a lease of goods; an assignment; a transfer of title; a flawed asset arrangement and the following transactions which may not secure payment or the performance of an obligation: transfers of accounts or chattel paper, commercial consignments and PPS leases.

9.15 Therefore, the inclusion of PPS Act secured parties within the definition of secured creditors will increase the category of secured creditors under the Bankruptcy Act in respect of security agreements entered into after the PPS Act registration commencement time. These secured creditors will be able to realise or deal with the secured property, which will not vest in the bankrupt estate, provided they have perfected their security interest.

Example

Lessor A leases a front loader washing machine to Person A for a term of two years (i.e. this is a PPS lease under section 13 of the PPS Act and a PPS lease is a security interest under section 12 of the PPS Act). Person A enters into a deed of arrangement under the Bankruptcy Act. Lessor A does not prove in bankruptcy and instead follows the enforcement procedures under the PPS Act. Lessor A is entitled to do this because, following the amendments to the Bankruptcy Act and the amended definition of secured creditor, Lessor A is now a secured creditor under the Bankruptcy Act.

Amendment of section 301

Items 10-13

9.16 These items amend section 301 of the Bankruptcy Act to include PPS Act security agreement provisions entitling the PPS Act secured party to terminate or modify the agreement or re-possess the property, when the PPS Act grantor or debtor becomes a bankrupt, commits an act of bankruptcy or enters into a deed of assignment or arrangement under the Bankruptcy Act, as void provisions.

Amendment of section 302

Items 14-17

9.17 These items amend section 302 of the Bankruptcy Act to include PPS Act security agreement provisions which entitle the PPS Act secured party to exercise any power or remedy or modify the agreement if the PPS Act grantor or debtor becomes a bankrupt, commits an act of bankruptcy or executes a deed of assignment or arrangement, as void provisions.

Application of amendments

Item 18

9.18 This item provides that item 9 amending the definition of 'secured creditor' in the Bankruptcy Act, in line with the PPS Act, will only apply to bankruptcies where the date of the bankruptcy arises after the PPS Act registration commencement time.

Amendment of the Commonwealth Inscribed Stock Act

Amendment of section 24B

Items 19-20

9.19 Section 24B of the Commonwealth Inscribed Stock Act allows for the making of regulations which would require the operator of a clearing and settlement facility, an incorporated company or other body corporate to keep a record of equitable interests in stock, and to comply with requirements in relation to the keeping of such a record.

9.20 These items have the effect of limiting the regulation making power so that it does not apply to security interests in stock within the meaning of the PPS Act and to which the PPS Act applies. This is consistent with the PPS Register being the principal register of security interests in personal property in Australia.

9.21 These items will commence on the later of (1) the start of the day the Consequential Amendments Bill receives Royal Assent, and (2) immediately after the commencement of the PPS Act. This will prevent regulations being made before the PPS Act registration commencement time to have effect after that time with the result that PPS Act security interests could be registered on two registers.

Amendment of the Corporations (Aboriginal and Torres Strait Islander) Act

Amendment of sections 453-10 and 511-1

Items 21-22

9.22 Paragraph 453-10(4)(b) of the Corporations (Aboriginal and Torres Strait Islander) Act provides that the Registrar of Aboriginal and Torres Strait Islander Corporations may charge some or all of the remuneration, charges or expenses of an authorised officer who examines the books of an Aboriginal and Torres Strait Islander corporation or related body corporate on the property of the corporation or related body corporate. It also provides that the Registrar may give the charge any priority in relation to existing charges on the charged property that the Registrar sees fit.

9.23 Paragraph 511-1(4)(b) provides that the Registrar may charge some or all of the remuneration, charges or expenses of a special administrator of an Aboriginal and Torres Strait Islander corporation on the property of the corporation or related body corporate. It also provides that the Registrar may give the charge any priority in relation to existing charges on the charged property that the Registrar sees fit.

9.24 These items apply subsection 73(2) of the PPS Act to charges created under paragraphs 453-10(4)(b) and 511-1(4)(b). Applying subsection 73(2) ensures the priority between a charge under one of these paragraphs and a security interest in the same property is determined in accordance with the Corporations (Aboriginal and Torres Strait Islander) Act after the PPS Act registration commencement time.

9.25 The amendments are intended to preserve the power of the Registrar to give any priority that the Registrar sees fit to charges created by the Registrar under these two provisions, after the PPS Act registration commencement time.

Amendment of the Health Insurance Act

Insertion of section 20AA

Item 23

9.26 Section 20A of the Health Insurance Act provides that a person entitled to receive a medicare benefit may assign that benefit to their practitioner. This provision facilitates bulk billing.

9.27 This item is intended to prevent a person from creating a valid PPS Act security interest in a medicare benefit that has been assigned to a practitioner under section 20A.

9.28 The amendments made by this item also ensure that subsection 20A(5) will continue to have effect after the PPS Act registration commencement time. That provision requires an assignment of a medicare benefit to be made in accordance with section 30A.

9.29 This item includes a definition of a 'PPSA security interest' which includes a security interest to which the PPS Act applies but excludes a transitional security interest under the PPS Act. This ensures that security agreements entered into before the PPS Act registration commencement time are not retrospectively voided.

Amendment of the Insurance Act

Amendment of section 62S

Item 24

9.30 Section 62S of the Insurance Act provides that the Federal Court may give directions about the remunerative and allowances for a judicial manager (a manager of a general insurer appointed by the Court) and determine who is liable to pay the remuneration and allowances. The judicial manager's remuneration and allowances may be charged against the property of the relevant general insurer. That charge will take priority in relation to existing charges on that property as the Court thinks fit.

9.31 This item applies subsection 73(2) of the PPS Act to charges created under section 62S. Applying subsection 73(2) ensures the priority between a charge under section 62S and a security interest in the same property is determined in accordance with the Insurance Act after the PPS Act registration commencement time.

9.32 The amendments are intended to preserve the power of the Federal Court to give any priority that the Court sees fit to charges created under section 62S, after the PPS Act registration commencement time.

Amendment of the Privacy Act

Amendment of section 13

Items 25-26

9.33 The note added by these items to section 13 of the Privacy Act will flag that subsection 157(4) and subsection 173(2) of the PPS Act make the following interferences with privacy under section 13 of the Privacy Act:

•

the failure of secured parties to provide notice of verification statements (written statements confirming the registration of their security interest financing statements) to the grantors;

•

the conduct of an unauthorised or prohibited search;

•

the use of personal information obtained through unauthorised or prohibited searches.

Insertion of section 28B

Items 27-29

9.34 These items expand the Privacy Commissioner's existing powers to include the power to investigate acts or practices which may be interferences with privacy under the PPS Act.

Insertion of section 49A

Item 30

9.35 Section 49A provides, as in the case of suspected tax file number and credit reporting offences, that where the Commissioner during the course of an investigation forms the opinion that subsection 172(3) of the PPS Act may have been contravened, the Commissioner must cease dealing with the complaint and inform the Registrar of PPS of his opinion. If the Registrar of PPS notifies the Commissioner that the Registrar has decided not to continue under section 222 of the PPS Act (obtaining an order for a civil penalty), the Commissioner may continue his investigation.

Amendment of the Quarantine Act

Definition of PPSA security interest

Item 31

9.36 This item inserts a definition of a 'PPSA security interest' into the interpretation section (subsection 5(1)) of the Quarantine Act. The definition includes a security interest to which the PPS Act applies but excludes a transitional security interest under the PPS Act.

9.37 The definition has been included to clarify references to PPSA security interests in the amendments to the Quarantine Act.

Amendment of section 65

Items 32-33

9.38 Sections 64 and 65 of the Quarantine Act provide the Commonwealth with the power to detain items of personal property for unpaid expenses incurred in connection with quarantining animals, plants and other goods.

9.39 The amendment will ensure that a secured party does not have the power to enforce its security interest (by seizing the detained property under section 123 of the PPS Act) while a vessel is detained pursuant to section 65 of the Quarantine Act.

Insertion of subsection 69A(14)

Items 34-36

9.40 Under section 69A of the Quarantine Act, the Minister may approve the payment of compensation for goods or premises that are destroyed under or in accordance with the Quarantine Act. Payment is to be made to the owner(s). Subsection 69A(14) provides that the owner means a person who had an interest in the goods or premises at the time of destruction but does not include a person who has an interest by reason that they are entitled to a benefit of a mortgage, charge or lien in respect of the goods or premises unless they were in possession of the goods or had control of the premises at the time of destruction.

9.41 These items amend section 69A to ensure that for the purposes of determining the owner of the goods or premises, a person who, or a partnerships which, had an interest in goods or premises at the time of their destruction does not include a person or partnership that holds a PPSA security interest in the goods or premises unless that person or partnership has possession or control of the goods or premises at the time of destruction.

9.42 As subsection 69A(14) already excludes persons with an interest under a mortgage, charge or lien, it is not necessary to include transitional security interests in the definition of a 'PPSA security interest'.

Amendment of the Wool International Act

Amendment of subsection 22J

Items 37-40

9.43 Section 22J of the Wool International Act requires that particulars of a charge in a unit of equity in WoolStock Australia Limited are registered in the register of equity holders in order for that charge to have effect. This is inconsistent with the policy in the PPS Act that the fact that a PPSA security interest is not registered does not affect the validity of the security interest.

9.44 These items amend section 22J of the Wool International Act to ensure that a charge on a unit of equity in WoolStock Australia Limited is solely registrable on the PPS Register.

9.45 Item 39 adds a note specifying that a charge over a unit of equity in WoolStock Australia Limited may be the subject of a registration on the PPS Register. In addition, a further note clarifies that the priority between charges over units of equity will be determined in accordance with the PPS Act.

Repeal of section 22K

Item 41

9.46 Section 22K of the Wool International Act sets out the priority of charges over units of equity. The priority provided is similar to the priority rules under the PPS Act, providing priority in the order of registration.

9.47 This item repeals section 22K of the Wool International Act. Charges under the Wool International Act are in the nature of a security interest over personal property to which the PPS Act applies. The priority between competing security interests in personal property will be determined under the PPS Act.

Repeal of paragraph 22L(b)

Items 42 and 50

9.48 Item 42 amends section 22L of the Wool International Act. Subsection 22L(b) provides for the beneficiary of a charge on a unit of equity to, upon request, have access to an entry in the register of equity holders. As charges will be registered on the PPS Register, the Wool International Act will no longer recognise beneficiaries of charges. The consequence of the amendment is that it will be necessary for the grantor to consent to a secured party having access to the register of equity holders under the Wool International Act.

9.49 Item 50 provides that where WoolStock Australia Limited has not complied with a request made by a person under paragraph 22L(b) of the Wool International Act, the requirement to comply with the request stops applying after the PPS Act registration commencement time.

Amendment of section 22R

Item 43

9.50 This item makes a technical amendment. The note in subsection 22R(2) refers to subsection (5) which no longer exists. The amendment repeals the note.

Item 44-45

9.51 These items repeal subsection 22R(4) of the Wool International Act. Section 22R(4) allows for a registered equity holder to notify WoolStock Australia Limited to make payments to beneficiaries of charges on units of equity, in accordance with the priorities established under section 22K of the Wool International Act.

Amendment of section 22S

Items 46 -49

9.52 These items amend section 22S of the Wool International Act to remove the requirement that WoolStock Australia Limited notify beneficiaries of charges in units in equity of amounts available for distribution. This is as a result of the particulars of the charges no longer being registered on the register of equity holders under the Act.