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Why have a personal property securities system?

 

Gavin McCosker, Registrar

Welcome to this post from Gavin McCosker, Registrar of Australia’s Personal Property Securities system.

Welcome to 2016 and my first post for the year. While none of us know for certain what lies ahead, we can expect that 2016 will be another busy year, with challenges and opportunities—and the choices we make to manage or maximise these will influence our capacity to grow, innovate, build confidence and invest in the future.

The Personal Property Securities Register is a great example of innovation and reform that can help consumers and businesses to better manage risk—and provides the basis for business to leverage their assets to access capital, providing opportunities for further growth.

As such, I thought it would be useful to talk today about the reason why Australia has a personal property securities system—the drivers for reform and the objectives of a well-functioning system.

Contents

  • What led to the development of the national personal property securities system?

  • The 4Cs

  • Significant micro-economic reform

  • Implementation of the reform

  • What is the purpose of the personal property securities system?

To start with, it might be useful to clarify what is meant by the term personal property. In short, personal property is any property that is not real-estate or fixtures—and which can be used as collateral in a financing or leasing transaction. Personal property can be new or secondhand goods, owned by businesses or individuals and can include:

  • stock in trade, artworks, motor vehicles, cattle and other livestock, crops, boats, aircraft, equipment, cash

  • intangible property, such as patents, copyright, commercial (not government-issued) licences, debts and bank accounts

  • financial property such as shares or cheques.

What led to the development of the national personal property securities system?

Prior to January 2012, Australia had a decentralised personal property securities system. What did this look like? The system was based on a combination of common law, equitable principles (which involves resolving disputes by applying principles of fairness and justness) and about 70 pieces of state, territory and federal legislation—and around 40 state, territory and federal registers that held information on secured personal property.

Perhaps not surprisingly, it took some time to realise a national centralised system. The idea can be traced back to the Law Council of Australia more than 40 years ago. This was followed by reviews of relevant laws by the Law Commission in the 1990s. This led to the 2005 establishment of a working group by the Standing Committee of Attorneys-General, to consider the proposal more closely.

A series of draft discussion papers followed, leading to the Personal Property Securities Act (the Act), which was passed by Parliament in late 2009. Much work followed, resulting in the Act becoming operational and the launch of the Personal Property Securities Register (PPSR) at the end of January 2012.

The 4Cs

The key objectives for the reform were what became known as the 4Cs for secured transactions involving the use of personal property:

  • increase consistency

  • increase certainty

  • reduce complexity

  • reduce cost.

Significant micro-economic reform

The passing of the Act and the introduction of the central register was a significant micro-economic reform for Australia. The reform required a high level of cooperation and commitment between all state and territory governments and the Commonwealth government—and relied on the referral of certain powers from state and territory governments to the Commonwealth.

The significance of the reform cannot be underestimated. It is clear in our work with international colleagues at the World Bank, the Corporate Registers Forum (CRF) and the International Association of Corporate Administrators) (IACA),that this reform is the envy of many other federated jurisdictions.

Implementation of the reform

The transition to one centralised system has not been without challenge. A significant amount of co-operation, co-ordination and support from different sectors has been needed to learn a new set of rules and adopt different business processes.

This means that some of the objectives of the reform are still being realised. As businesses grasp the protection and opportunities that the PPSR offers—and as legislative and register usability issues start to be addressed in response to the recent review of the Act, momentum is certainly building.

Australia is in a very strong position to reap the full economic benefits of a personal property securities system in the years ahead.

What is the purpose of the personal property securities system?

There are three broad objectives of a well-functioning personal property securities system.

  1. Financial risk exposure / management
    Firstly, it gives businesses and individuals an ability to manage the financial risks associated with extending credit or supplying goods, by providing a facility to register their interest over personal property that’s in the possession of others. This lowers the overall financial risk carried by the business or individual.

  2. Access to finance
    Secondly, a well-functioning system provides a means for businesses to use a much wider range of tangible and intangible goods to raise capital for investment in their business.

  3. Consumer protection
    Lastly, use of the register to make interests over personal property known to others is a very important consumer protection function—particularly in relation to highly mobile goods such as motor vehicles. The capacity to easily search the register helps prevent consumers from purchasing goods that still have finance owing on them.

In a federation like Australia, or an economy where localised arrangements have traditionally operated, moving to a centralised system provides a good foundation to achieve these three objectives.

Although the complexity of establishing a centralised system increases with the size of the economy, a single national approach to the management of grantor identification, supported by authentication, is the best means of delivering the desired economic benefits of a secured transaction system. Its efficiency and effectiveness is underpinned by ease of access to highly reliable transactional information, which supports trust and confidence in the system.

Thanks for reading. Join me next time when I’ll talk more broadly about how the personal property securities system is of benefit to the economy.

Gavin McCosker
Registrar
Personal Property Securities
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