Review of the Personal Property Securities Act 2009

Consultation Response Template

Consultation Paper 1

Instructions:

Please use the form below to provide feedback with respect to the proposed recommendations and issues listed in each section of the form. Please refer and respond to the proposed recommendation or issue as set out in Consultation Paper 1. The heading and paragraph number of the relevant sections of the consultation paper are included to help guide you.

Please note your agreement or disagreement with the proposed recommendation by deleting either ‘Yes’ or ‘No’ where indicated. Comments can be provided in the box below each proposition. There is no word limit for comments but succinct responses clearly setting out the reasons for agreement or disagreement with the proposed recommendation will be of most use for the purposes of the review.

You may respond to as many or as few propositions as you wish.

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Name: Australian Securitisation ForumOrganisation: The Australian Securitisation Forum (ASF) was established in 1989 and is the peak body representing securitisation industry in Australia. Its role is to promote the development of securitisation in Australia. The ASF’s members include representatives of all of Australia’s banks, many of Australia’s investment banks, building societies and credit unions, the major non-bank originators, many other participants in the Australian financial system, as well as organisations that provide professional services to the securitisation industry (such as trustee companies, mortgage insurers, ratings agencies and the major legal and accounting firms).Background / Expertise / Interest in PPSA Review: As the representative body for key industry and adviser participants in the securitisation industry the ASF has a keen interest in the PPSA as it applies to securitisation transactions. The PPSA has had a significant impact on aspects of securitisation transactions, in particular as a result of its application to transfers of accounts and similar transactions that were not, prior to introduction of the PPSA, treated as security interests. Many of the seemingly anomalous issues that have been experienced under the PPSA have arisen in the context of securitisation transactions.Contact Details: Suite 605, 3 Spring Street, Sydney NSW 2000

(t) +61 2 8243 3906(f) +61 2 8243 3939cdalton@securitisation.com.auattention: Chris Dalton

Note: Unless otherwise indicated:

(a) Where we make no submission this indicates that we as an organisation neither support nor oppose the recommendation. Generally we have limited our submissions to those items of specific relevance to the securitisation industry in Australia, and in relation to which there is a consensus view within the ASF as to how the matter ought to be treated. Individual members of the ASF may have views in favour of or against any of these matters.

(b) Where we state that support a recommendation or statement in the consultation paper without giving reasons we do so [for the reasons stated in the paper].

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2.1.2 The ostensible ownership concernIn my view, the concept of perfection and the existence of the Register are integral components of the Act, and the publicity function that they are designed to serve, by providing outsiders with an opportunity to determine whether an item of personal property might be subject to an encumbrance, is a central function of the regime established by the Act and should be preserved. I would however be interested to hear whether others share this view.Comments:

We do not see this principle as relevant to receivables sold under securitisation transactions. As receivables are intangibles and are not themselves recorded on any public register, a purchaser or other acquirer of interests in receivables can only ever know what (if anything) it is acquiring by either making enquiry of the seller or, alternatively, of the debtor. Given that the acquirer must rely on such enquiries to establish the existence and quantum of what is owed, together with other potential defects in title (such as rights of set-off), the recording of transfers on the PPSR does little if anything to advance the position of an acquirer.The PPSR may also not protect an acquirer against the risk that the seller of receivables has not previously disposed of them pursuant to a legal assignment – as in such a case the seller will have no rights in the receivables and therefore be prevented from making an effective subsequent assignment of them under both general law ‘nemo date’ principles and PPSA requirements for a grantor to have ‘rights’ in collateral in order to support attachment of a security interest, while the purchaser’s interest will be a security interest and so outside the general taking free rules.The position is clearly different from that which applies where tangible property remain in the possession of a person who has sold or granted other interests in them.Rather than addressing concerns of ostensible ownership, we consider that the utility of the PPSR in the context of securitisation transactions lies in providing a mechanism by which an acquirer of receivables can protect its interest in them without giving notice to the underlying debtors.

2.2 Should the Act be repealed?Proposed recommendation 1.1: That the Act not be repealed, but rather that it be amended, to enable it to better achieve its potential.Do you agree with the proposed recommendation? See belowComments:

We make no submission as to whether or not the Act should be repealed but if retained it should be amended.

3.2 Does a security interest need to be a proprietary interest?Proposed recommendation 1.2: That the definition of "interest" in s 10 of the Act be deleted.Do you agree with the proposed recommendation? YesComments:

Securitisation transactions involve multiple contractual relationships between the SPV and entities that provide services to the SPV. Any uncertainty as to whether a contractual right needs to be perfected will result in increased costs and complexity.

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3.3.1 Interpretation of s 12(2)[T]he correct approach to the interpretation of s 12(2) is that the list of transactions does not expand the meaning of the term "security interest", but only provides examples of transactions that can give rise to a security interest if they otherwise fall within the definition of the term.Comments:

We agree.

3.3.2 Conditional sale agreements – s 12(2)(d)Proposed recommendation 1.3: That s 12(2)(d) be amended to read:

(d) an agreement to sell subject to retention of title;Do you agree with the proposed recommendation? No submissionComments:

3.3.3 Trust receipts – s 12(2)(g)Proposed recommendation 1.4: That s 12(2)(g) be deleted.Do you agree with the proposed recommendation? No submissionComments:

3.3.4 Interests that might also be deemed security interests – ss 12(2)(h) and (i) Proposed recommendation 1.5: If a transfer of an account or chattel paper continues to be a transaction that is deemed by s 12(3) to give rise to a security interest whether or not the transaction in substance secures payment or performance of an obligation, that a new paragraph be inserted in s 12(2), in substitution for current s 12(2)(g) (as to which, see Proposed recommendation 1.4 above):

(g) a transfer of the benefit of a monetary obligation (whether or not an [account] or [chattel paper]);

Do you agree with the proposed recommendation? No submissionComments:

As we believe this is already the position we neither support nor oppose including such transfers in section 12(2). However, in line with approach taken by the consultation paper in relation to certain other issues we query whether the aims of the review would be better promoted by not including specific reference in section 12(2). See also our comments on recommendations 4.1 and 4.2.

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3.3.5 Assignments, and transfers of title – ss 12(2)(j) and (k) Proposed recommendation 1.6: None at this stage, pending further consideration.Comments:

We agree that section 12(1) should not apply to transactions under which the grantor does not retain an interest in the property the subject of the transaction. This would not preclude some transfers being security interests on the basis that the transferor retains possession and / or a right to have the property re-transferred upon performance of the secured obligations.

3.3.6 Flawed asset arrangements – s 12(2)(l)Proposed recommendation 1.7: That s 12(2)(l) be deleted.Do you agree with the proposed recommendation? YesComments:

As previously submitted in relation to the Personal Property Securities Bill 2009, the ASF supports this recommendation.

4.1 Deemed security interests – Policy rationale [T]he primary factor in deciding whether a particular interest should be considered for inclusion in s 12(3) are whether it engages the ostensible ownership concern and, if it does, whether it would produce significant disruption if the interest were not captured.Comments:

We do not believe sales of receivables engage this policy concern. Receivables are not tangible and so are not in the possession of the seller, nor under true sale transaction will they be recorded as assets in the seller’s financial statements. An acquirer must rely on enquiries made either of the seller or the debtors to establish the nature, the existence and quantum of the receivables transferred, so reliance on such enquiries to establish the seller’s good title to the receivables does not appear to increase the risk undertaken by such an acquirer.Further, the experience of registrations under the PPSA since its implementation is such that acquirer’s must continue to rely on such enquiries because of the limited nature of the information available on the PPSR. Rather than assist acquirers to independently establish the good title of the seller, the PPSA has removed enquiries of the debtor or purchaser as an effective (if often impractical) method of doing this. For the reasons given above searches of the PPSR also may not be effective to protect against the possibility of a prior legal transfer. However, we do see utility in retaining transfers of accounts as deemed security interests for priority purposes, so that transferees of receivables may protect their interest against subsequent dealings by the transferor without having to give notice to the debtors.

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4.2.1.1 Should the Act deem a transfer of an account (however defined) to be a security interest if it does not secure payment or performance of an obligation? Proposed recommendation 1.8: That s 12(3)(a), which provides that a transfer of an account can be a security interest whether or not it in substance secures payment or performance of an obligation, be retained.Do you agree with the proposed recommendation? See belowComments:

For the reasons given in 4.1 above we do not believe absolute transfers of accounts engage the ostensible ownership concerns such as would warrant the deeming of such transfers to be security interests under section 12(3).

There is utility in deeming transfers to be security interests for the purposes given in Section 4.1 – that is, to enable transferees to protect their interest against subsequent dealings without having to give notice to the debtors.

However, if s12(3)(a) is retained then amendments should be made to reconcile the interaction of the PPSA rules with general law rules affecting debtors who have received notice of an assignment; and to ensure that the statutory effect of the deeming does not overreach the policy rationale which supports it. We comment further on this below. There are also aspects of the rules relating to the effective creation of security interests which should be clarified if transfers of accounts continue to be treated as security interests – we will comment further on this in our submissions to Consultation Paper 2.

Aspects of the details required to be entered for registration of security interest involving trustees have also given rise to some confusion over whether a reallocation of receivables between trusts by a common trustee which continues as the holder of the receivables must be registered as a transfer from the trustee as trustee of the ‘transferring’ trust to the trustee as trustee of the ‘transferee’ trust. Such a transaction does involve any transfer and so should not require registration, but if transfers of accounts continue to be deemed to be security interests it would be helpful if this could be clarified.

4.2.1.2 The meaning of "account"Proposed recommendation 1.9: None at this stage, pending further consideration.Comments:

We would support simplifying the definition of ‘account’, but would not support distinguishing between transfers of accounts based on the business of the transferee. The policy rationale for such a distinction is unclear and it would be likely to raise some difficulty in practice in the context of securitisation transactions given the common use of (1) SPVs which may not engage in any business other than a one-off acquisition of a receivables pool, and (2) professional trustees which engage in many different types of business but do so on behalf of separate and unrelated trusts.

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4.2.1.3 The meaning of "transfer" – outright legal transfersProposed recommendation 1.10: That s 12(3)(a) not apply to a transfer of an account that is an outright legal transfer.Do you agree with the proposed recommendation? Yes, subject to our

commentsComments:

If s12(3)(a) is retained then we support this exclusion, subject to the following.Any exclusion should extend not only to legal transfers but to any transfer of which notice has been given to the debtor. The distinction between legal and equitable transfers in this context is not meaningful. In both cases the transferee is able, by one means or another, to recover from the debtor and the debtor is unable to obtain a good discharge by payment to the transferor without the consent of the transferee. The only relevant difference between a legal and equitable transfer here is that in the case of an equitable transferor the transferor retains an interest in the receivable which would enable it to make a further assignment, whereas the transferor under a legal assignment may be unable to do this. This may be a relevant distinction if ostensible ownership was the policy driver for treating transfers of accounts as security interests. However, as noted in our submissions above we do not believe this is the correct policy driver. The utility of s12(3)(a) lies in enabling a transferee’s priority to be protected in circumstances where it has not given notice – it follows that once notice has been given there is no further purpose to be served by treating the transfer as a security interest.Consideration in both cases (ie legal and equitable transfers) will need to be given to the treatment of the transfer as against other interests in the receivable at the time notice is given, as the effect of giving the notice would be to turn a transaction which was treated as a security interest into one which was no longer so treated. We suggest this could be resolved by treating the giving of notice as a transfer of the receivable, with the transferee taking free of any security interests over which it had priority prior to the giving of the notice (but subject to security interests which had priority over it).An alternative to the exclusion of absolute transfers (whether legal or equitable) would be to treat the giving of notice to the debtors as an alternative mode of perfection. We will comment further on this in our submission to Consultation Paper 2.

4.2.1.3 The meaning of "transfer" – novationsProposed recommendation 1.11: That the Act not be amended to clarify that a novation is not a "transfer" for the purposes of the Act.Do you agree with the proposed recommendation? No submissionComments:

We agree that a novation is not a transfer for the reasons stated in the paper.

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4.2.1.3 The meaning of "transfer" – declarations of trustProposed recommendation 1.12: That the Act not be amended to clarify that a declaration of trust is not a "transfer" for the purposes of the Act.Do you agree with the proposed recommendation? No submissionComments:

We agree that a declaration of trust is not a transfer for the reasons stated in the paper, although as noted in our submissions above there is some confusion as to whether reallocation of receivables amongst different trusts by a common trustee needs to be perfected by registration as a transfer. It would be helpful if this was clarified.

4.2.2 Transfer of chattel paperProposed recommendation 1.13: That the definition of "chattel paper" in section 10, and all references in the Act to chattel paper (including s 71), be deleted.Do you agree with the proposed recommendation? YesComments:

In addition to the reasons given in the in the consultation paper, we further note that due to the current potential uncertainty in the characterisation of particular receivables registrations on the PPSR of transfers are in practice sometimes separately registered as both transfers of accounts and transfers of chattel paper in order to avoid the risk of an ineffective registration. The removal from the PPSA of chattel paper will remove this issue and therefore reduce the current level of duplication of registrations for the same transaction.

4.3 Commercial consignmentsProposed recommendation 1.14: None at this stage, pending further consideration.Comments:

No submission

4.4.2 Personal Property Securities Amendment (Deregulatory Measures) Bill 2014The Personal Property Securities Amendment (Deregulatory Measures) Bill 2014 is currently before Parliament. If passed, it will remove paragraph (1)(e) from the definition of PPS lease in s 13, and make consequential amendments to other provisions in the Act. As Government has already responded to the issue of s 13(1)(e), I am proceeding on the basis that I will not need to address it in my report. However, I would note my support the proposed deletion of paragraph (e) from the definition of PPS lease, and subject to the Bill’s passage through Parliament, the prompt commencement of the amendments.Comments:

No submission

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4.4.3 Should the Act apply to leases at all, if they do not operate in substance as security?Proposed recommendation 1.15: That the Act continue to apply to some types of longer–term leases, whether or not they operate in substance as security for payment or performance of an obligation.Do you agree with the proposed recommendation? No submissionComments:

4.4.4 Should the Act apply to bailments?Proposed recommendation 1.16: That the definition of PPS lease in s 13 be amended to remove all references to "bailments". Do you agree with the proposed recommendation? See commentsComments:

In the context of securitisation and other debt capital markets transaction, there has been some discussion about whether custodian arrangements are “bailments” for the purposes of the PPSA. Therefore, we agree that the definition of PPS lease in s 13 should be amended to remove all references to “bailments” or, failing removal, that it be made clear that normal custodial arrangements are not caught.

4.4.5 Should the Act apply to leases with an indefinite term of less than one year?Proposed recommendation 1.17: That section 13(1)(b) of the Act be deleted.Do you agree with the proposed recommendation? No submissionComments:

4.4.6 Should the "one year" test be changed?Proposed recommendation 1.18: That references in s 13 of the Act to "one year" not be changed. Do you agree with the proposed recommendation? No submissionComments:

4.4.7 Leases that can be terminated early by agreementProposed recommendation 1.19: None at this stage, pending further consideration.Comments:

No submission

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4.4.8 The “regularly engaged in the business of leasing” requirementProposed recommendation 1.20: That s 13(2)(a) not be amended to insert "of that kind" after the phrase "regularly engaged in leasing goods".Do you agree with the proposed recommendation?Comments:

No submission

5.2 The meaning of "property" The Act does not separately define "property", but leaves its meaning to the general law. This, in my view, is appropriate – the concept of property will continue to evolve over time, and it is desirable that the Act be able to move in tandem with that evolution, rather than set a pre-determined meaning in stone.Comments:

We support this approach.

5.3 LicencesProposed recommendation 1.21: That the definition of "licence" in s 10 be amended to make it clear that it applies whether or not the relevant right, entitlement, authority or licence is transferable. Do you agree with the proposed recommendation? No submissionComments:

5.4 LandProposed recommendation 1.22: That the definition of "land" in s 10 be deleted.Do you agree with the proposed recommendation? YesComments:

5.5 TreesProposed recommendation 1.23: That the definition of "crops" in s 10 not be amended to clarify when trees can be within the definition.Do you agree with the proposed recommendation? No submissionComments:

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5.6 Statutory licencesProposed recommendation 1.24: That State, Territory and the Commonwealth Governments consider reversing legislation that removes statutory rights from the operation of the Act, and that consideration also be given to deleting the provisions in the Act that allow such licences to be removed from its ambit.Do you agree with the proposed recommendation? No submissionComments:

6.2 General structure of s 8Proposed recommendation 1.25: That s 8(1) be split into two provisions: one listing interests that are not "security interests" for the purposes of the Act, and the other listing interests that are not "personal property" for the purposes of the Act.Do you agree with the proposed recommendation? No submissionComments:

If the recommendation is adopted it should be adopted in a manner which ensures that interests not currently treated as security interests to which the Act applies by virtue of the current s8(1) continue to enjoy that status.

6.3 Close-out netting contracts – s 8(1)(e)Proposed recommendation 1.26: None at this stage, pending further consideration.Comments:

No submission

6.4 Interests in or in connection with land – s 8(1)(f)(ii)Proposed recommendation 1.27: None at this stage, pending further consideration.Comments:

Subject to any clear and specific exceptions we think it is preferable that the PPSA adopt a consistent approach in observing the limits of the PPSA as applying only in relation to dealings in personal property. Section (8)(1)(f)(ii) reflects this limit and avoids potential conflict between persons claiming an interest with priority under the PPSA and persons with an interest in the land or estate concerned the priority of which is regulated by applicable state or territory legislation and / or the general law.

6.5 Unperformed contracts – s 8(1)(f)(iii)Proposed recommendation 1.28: That the language "(including a successive transfer)" be deleted from s 8 (1)(f)(iii).Do you agree with the proposed recommendation? No submissionComments:

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6.5 Unperformed contracts – s 8(1)(f)(iii)

6.6 Transfers of remuneration – s 8(1)(f)(iv)Proposed recommendation 1.29: That s 8(1)(f)(iv) be deleted.Do you agree with the proposed recommendation? No submissionComments:

6.7 Transfers of annuity or insurance policies – s 8 (1)(f)(v)Proposed recommendation 1.30: None at this stage, pending further consideration. Comments:

No submission.

6.8.1 Sections 8(1)(f)(vi) to (viii)Proposed recommendation 1.31: That ss 8(1)(f)(vii) and (viii) be deleted.Do you agree with the proposed recommendation? Yes, subject to our

commentsComments:

Our support for the deletion of paragraph (viii) is subject to our comments elsewhere in relation to the treatment of outright transfers.

6.8.2 Section 8(4)Proposed recommendation 1.32: That s 8(4) be deleted.Do you agree with the proposed recommendation? YesComments:

6.9 Water rights – s 8(1)(i)Proposed recommendation 1.33: That ss 8(1)(j) and (5) be deleted. Do you agree with the proposed recommendation? No submissionComments:

6.10.1 The meaning of "fixture"Proposed Recommendation 1.34: That the definition of "fixture" in s 10 be deleted.

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6.10.1 The meaning of "fixture"Do you agree with the proposed recommendation? YesComments:

6.10.2 Should fixtures be excluded from the Act? Proposed recommendation 1.35: That Government engage with the States and Territories to explore whether a regime can be developed, potentially along the lines of the principles applied in the Canadian PPSAs, to enable fixtures to be brought within the Act. Do you agree with the proposed recommendation? NoComments:

As noted above we believe the PPSA should maintain a consistent approach in not applying to transactions that relate to land. Extending the PPSA to apply to fixtures would blur these lines.

6.11 Pawnbrokers – s 8(1)(ja) and (6)Proposed recommendation 1.36: None at this stage, pending further consideration.Comments:

No submission.

6.12 Interests in superannuation – s 8(1)(jb)Proposed recommendation 1.37: That s 8(1)(k) be deleted. Do you agree with the proposed recommendation? No submissionComments:

7.2 Cash depositsProposed recommendation 1.38: That the Act not be amended to clarify whether the making of a deposit under an agreement for the sale of property will give rise to a security interest.Do you agree with the proposed recommendation? No submissionComments:

7.3 Supplies of fit-out or other goods as part of a real property leaseProposed recommendation 1.39: That the Act not be amended to exclude or otherwise modify the rules for a lease of fit-out or other goods as part of a lease of real property, beyond what is already provided in s 12(2)(c).Do you agree with the proposed recommendation? No submissionComments:

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7.4 Turnover trustsProposed recommendation 1.40: None at this stage, pending further consideration.Comments:

It is common in the context of sales of receivables that the seller or servicer hold the proceeds of trust the receivable on trust for the purchaser. Such a trust reflects the fact that the collections are in fact the property of the transferee, but an argument could be made that it also ‘secures’ the separate contractual obligation of the seller/servicer to account for the collections. It would be helpful to clarify that a trust of money or proceeds is not to be characterised as a security interest merely on the basis that the it ‘secures’ an obligation to account for or pay over the money or proceeds concerned.

7.5 Minimum thresholdsProposed recommendation 1.41: None at this stage, pending further consideration.Comments:

No submission.

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