Hire and Rental News - May 2018

The expressly stated purpose of the 2017 amendments to the PPSA was to relieve hire businesses from the PPSA until they cross the PPS lease time threshold. In the Minister’s second reading speech he said (emphasis added) – ‘The Bill will amend the Act’s definition of PPS Lease to ensure it captures only leases which are long enough to necessitate registration on the PPS Register to meet the Act’s policy objectives. Leases with an indefinite term will only require registration once they have exceeded two years in length.’   Now, applying the Court’s reasoning in the Allied Case to the scenario of an indefinite hire, a hirer will not, in our view, be in possession as a grantor of a PMSI until such time as a PPS lease actually arises. It is true Allied was not a case about the PPS lease but the following remarks by Blue J support the application of the same analysis to simple hires that turn into security interests. By contrast, the person who subsequently becomes the grantor of a purchase money security interest might hold possession of the property before acquiring ownership of the property financed by mortgage finance. For example, the person might simply be hiring goods on a weekly basis. That person might later negotiate with the owner to purchase the goods and obtain mortgage finance to finance the purchase. Lenders to the hirer who become security holders during the period in which the hirer is hiring the goods do not obtain a security interest over the INDUSTRY in FOCUS 18 HIRE AND RENTAL NEWS • MAY 2018 ownership of the goods because the ownership is retained by the owner. Such lenders would not be prejudiced by the subsequent grant of a security interest to the mortgagee lender providing the finance to the hirer to acquire ownership of the goods. Such lenders would not be misled by the hirer’s possession of the goods. What about section 588FL of the Corporations Act? Section 588FL can invalidate a security interest if registration is not made within 20 business days of the date of creation of the security agreement. To survive section 588FL, at least six months have to pass between the registration and any insolvency. Section 588FL may (we trust) be gone soon if the recommendations of the Whittaker Report are enacted. In the meantime, it is clear the 20 business day period doesn’t start to tick until there is a ‘security agreement’. Our view is a contract for an indefinite hire simply is not a ‘security agreement’ – again until the two years PPS lease threshold is breached. We think the points noted above would, along with the approach in the Allied Case, apply here. It may well be excessively cautious to think an indefinite hire could be a ‘security agreement’ from day one even though the PPSA does not yet apply to it. If one registers six months before there is a security interest – ie: just prior to 18 months into the hire, then arguably section 588FL can’t operate anyway because there will always have been a registration six months before any insolvency that could threaten any security interest.  Conclusion – when should you register when a hire starts as indefinite? • If there is a subsequent agreement the hire will last more than two years (including any option) – at the time the parties agree to that because that is when a security interest arises; or • If the hire is indefinite but could possibly exceed the two year threshold – just before 18 months into the hire. The 18-month timeframe is adopting the most cautious view of section 588FL – until section 588FL is repealed. However, the PPSA is complex and registration strategies typically differ between hire businesses. Hire businesses should always seek advice about their own particular circumstances. Contact: 02 8281 7940 or visit website: www.bartier.com.au When do you need to register indefinite hire under the PPSA? continued from p16... "It may well be excessively cautious to think an indefinite hire could be a ‘security agreement’ from day one even though the PPSA does not yet apply to it...."