Mar 252015

The Final Report on the review of Australia’s Personal Property Securities Act (PPSA) was tabled before Parliament on 18 March 2015.  (It was written by Bruce Whittaker, Partner, Ashurst.)


Cover of report

Extracts from Executive Summary

…. The Personal Property Securities Act 2009 (referred to in this report as the Act) has improved consistency in Australia’s secured transactions laws, but submissions emphasised that the Act and the Register are far too complex and that their meaning is often unclear, and that the resultant uncertainty has not allowed the Act to reach its potential…. …. Much can be done to improve the Act. The Act is significantly longer than the corresponding legislation in other jurisdictions, and while some of that additional length is attributable to constitutional or other machinery provisions, much of it flows from the very prescriptive nature of some of the drafting, and from the inclusion of additional provisions that may be of only marginal benefit…. …. There is no one single step that by itself will produce a major improvement to the Act. Rather, improvement needs to come from the making of many small changes…. …. The reforms introduced by the Act will only realise their objectives if the people that it affects are aware of it, and understand how it affects them. Government went to considerable efforts to raise awareness of the Act around the time that the Act was passed, but general awareness of the Act appears to have remained low, and the complexity and unfamiliarity of the content of the Act have meant that many do not know how to work with it….


There are 394 recommendations in the Final Report.  They appear in a table  in Annexure E, beginning at page 502 of the report.  DOWNLOAD: The full report is available for download at this AG department website.

Non-compliance with the Act

As someone who believes that our laws must be drafted using plain writing skills, and as one of those who felt strongly and said from the start that the  Personal Properties Securities Act 2009 was far too complex and confusing for the vast majority of people to understand (and hence, badly written), the Report’s comments to this effect are worth repeating here.  They appear under the heading  “3.2.3  Causes of non-compliance with the Act”:

The lack of awareness and understanding of the Act among users is also the primary reason why businesses are failing to comply with it. A person who is not aware of the existence of the Act, or of the fact that it could apply to them, is most unlikely to be operating in a manner that is consistent with the rules set out in the Act, particularly as those rules are very different in some critical respects to the laws that preceded them. Similarly, even people who are aware of the Act and of the fact that it affects them are often failing to comply with its rules because they do not understand those rules properly. One submission from the rural sector observed, for example, that the Act:

has not achieved a clear and appropriate outcome for small business; rather it has created a raft of uncertainty, misrepresentation and total confusion for all small business operators in Rural Australia.

The extracts from submissions that are set out above in Section 3.1.2 all make the same point: that the Act and the Register are far too complex. This was a consistent theme across the submissions as a whole.

The Act deals with a complex area of the law – one that traverses our entire economy, and that manifests itself in different sectors of the economy in very many different ways. The area does not lend itself to one simple set of rules, and the Act will always be complex. The submissions demonstrated, however, that the Act is more complex than it needs to be. In my view, a number of factors have contributed to this outcome.

First, as noted earlier, many of the concepts and much of the terminology in the Act have been adopted from overseas models. Those models were not created in a legal vacuum, but were founded in and based on the substance of the legal systems for which they were developed. In particular, while Article 9 of the Uniform Commercial Code in the United States was regarded as revolutionary in the way that it created a standard set of rules for all types of security interests, it was also very much a creature of the state of law and commercial practice in the United States at the time it was developed. Clearly, the economic structures and legal systems in Australia in the early 21st century are very different to those that prevailed in the United States in the middle of the previous century. As a result, terminology and concepts that made sense and were relevant for Article 9 as part of United States law will not necessarily make the same sense, or have the same relevance, in the Act as a component of current Australian law.

Secondly, it appears that the architects of the Act may have tried too hard to be helpful. The Act is far longer than its Canadian and New Zealand counterparts, even allowing for the additional provisions that were included to accommodate constitutional and other machinery requirements. The developers of the Act appear to have endeavoured to produce a “best of breed” piece of personal property securities legislation, by picking out the best elements of the offshore models and then adding additional detail in an effort to explain more clearly exactly what is required. Rather than helping Australian businesses, however, this had the effect of creating very specific and detailed operational requirements. It limited flexibility and required changes to operating practices in order to align them with the structures required by the new rules.

The third main factor that has led to this situation, in my view, is that the development of the Act appears to have been approached as a design process, too divorced from the realities of the marketplace that it was designed for. While Government did provide the business and legal community with opportunities to comment on drafts of the legislation, the sense of many of those who were involved in the consultation process was that input from the business and legal community was not sufficiently incorporated into the policy design and the detailed drafting. As a result, there is a misalignment in some areas between the policy and drafting of the Act on the one hand, and the operating realities of the Australian business environment on the other. This has created confusion and uncertainty, rather than clarity and certainty.

This is not intended to reflect adversely on the individuals involved in the actual drafting of the Act, or those who instructed them. Rather, it is a reflection of the magnitude and complexity of the task.

Whatever the reasons for the confusions and complexities in the Act, they have made the Act very hard to understand and to work with, not just for businesses but even for legal specialists as well. This is exacerbated by the fact that the complexities compound each other – unfamiliar terms and uncertain concepts are used in complex provisions, in a way that can make it even more difficult to determine how those complex provisions inter-relate with each other. The cumulative effect is that the Act can be very difficult to understand and to work with.

It is clear that much can and should be done to streamline the Act, and to align it more closely with the realities of the marketplace that it applies to. That is the subject of Chapters 4 to 9 of this report.

The big challenge for amendments to the Act that are made as a result of the Final Report is that they make the Act and its practical application much easier to understand.

GST liability on asset sales by mortgagees: Treasury review completed

 GST, Insolvency practices, Tax debts, Tax liabilities, Taxation Issues  Comments Off on GST liability on asset sales by mortgagees: Treasury review completed
Feb 172012

A draft of  legislation to clarify how the GST Act operates where a mortgagee in possession sells the property of a corporation has been issued for comment .

This exposure draft, issued on 14 February 2012,  follows a consultation paper issued on 7 June 2011.  The Treasury says that: “The exposure draft material has been developed taking into account comments made by stakeholders.”  

What those comments and views were will be available for public viewing on the Treasury website soon. It is Treasury practice to publish submissions on the consultation paper after the legislation has been introduced into the Parliament.

 The Treasury says that “The exposure draft legislation seeks to clarify the GST law for entities in the mortgage lending sector so that representatives of incapacitated entities will no longer need to differentiate between different provisions of the GST law and will be able to report and account under a single registration.”

The Treasury has invited interested parties to comment on the latest exposure draft.  Closing date for submissions: Tuesday, 13 March 2012. Address written submissions to:
The General Manager
Indirect Tax Division
The Treasury
Langton Crescent

Copies of the Exposure Draft, the Explanatory Memorandum and the original June 2011 Consultation Paper are available HERE.

My own submission to the June 2011 consultation paper was as follows:

“I make this brief submission in response to your Consultation Paper of 7 June 2011, in which it is proposed that section 195‑1 of A New Tax System (Goods and Services Tax) Act 2000 (the GST Act)  be amended to expressly provide that Division 105 operate to the exclusion of Division 58 where a mortgagee in possession or control sells the property of a corporation.  You have also asked a much broader question, which is “Is there an alternative way to better achieve the Government’s policy objective of a representative of an incapacitated entity being liable for GST for supplies of property in their possession or control belonging to a corporation?”
In my opinion:
  • Division 105 of the GST Act should not be amended as is proposed.
  • Where a mortgagee takes possession of most of the assets of a corporation, the GST outcome should be the same regardless of the mechanism the mortgagee employs to exercise its rights of repossession and sale.
ATO was just resolving a conflict
 The proposal in the Consultation Paper seems to be guided and influenced by ATO Interpretive Decision 2010/224.  However, that decision by the ATO does not seem to give much consideration to the tax and equity issues involved.  Rather, it just seems to resolve the conflict by applying “the accepted principle of statutory interpretation (which) is that a general provision would give way to the more specific provision where there is conflict between the provisions”. 
Not just a tax issue
There is a good reason why the term ‘controller’ in the Corporations Act 2001 includes a mortgagee who takes possession or control of a corporation’s property in the event of a default by the mortgagor.  Its arises out of abuses of corporate insolvency accountability principles that used to occur prior to 1993.  Back then, to deprive the ATO of its right to priority payment of outstanding group tax, and to avoid the reporting and compliance duties imposed under company law, banks and other mortgagees decided to use the “agent for the mortgagee in possession” option.  Amendments arising out of the ALRC’s 1988 General Insolvency Inquiry took the attractive advantages out of this option.
Even though the “agent for mortgagee in possession” and “mortgagee in possession” mechanisms are now caught by the Corporations Act, I believe we ought to carefully consider what influence the proposed change to Division 105 of the GST Act may have on the choices that mortgagees make when taking possession of a company’s assets.  (I refer here to those who have charges over most of a company’s assets.)  No doubt, if there are tax advantages or cost advantages in them, these alternative mechanisms will become popular again.  In which case we ought to consider whether this development might be to the detriment of accountability to employees, other creditors and the public. 
Division 58
It appears to me that Division 58 was drafted as it was because there would have seemed to be no logical or perceptible reason why the GST outcome of a mortgagee taking possession of a company’s assets should be determined by whether they appointed someone called a “receiver” or someone called an “agent for the mortgage”.  Personally, although I have read lots of relevant material I still cannot see why the GST outcomes should be different.  However, I can see a case for applying a provision such as Division 105 where a financier takes possession of an asset or two under right given in chattel mortgages or the like.
 Division 105
If Section 105.5 of the GST Act was intended to apply in a situation where a mortgagee takes possession of most of the assets of a company, I find this hard to see in its narrow wording.  It seems to apply to a very specific situation.  In my view Treasury should focus in this review on uncovering the meaning of Division 105 of the GST Act and defining what situation – other than those addressed by Division 58 of the GST Act – that Division 105 is trying to address, or should address.”
Jun 092011

 The Government has just issued a consulation paper headed “GST treatment of property in possession of a mortgagee”. 

It is asking for views on whether “there an alternative way to better achieve the Government’s policy objective of a representative of an incapacitated entity being liable for GST for supplies of property in their possession or control belonging to a corporation”.

 The Government claims that amendments made to GST legislation in December 2009 had “unintended consequences” for the business mortgage lending sector.  It announced in May 2011 that it would amend the GST law “to ensure that the provisions dealing with the GST treatment of property in possession or control of a mortgagee operate as intended and reduce compliance costs, particularly for entities in the mortgage lending sector”.

Closing date for submissions: 6 July 2011.

For a copy of the paper CLICK HERE.

Mail: The General Manager, Indirect Tax Division, The Treasury, Langton Crescent, PARKES  ACT  2600
Enquiries: Enquiries can be initially directed to Ms Joanne Kennedy
Phone: 02 6263 2079



If the proposed amendment goes ahead, it will take effect from 1 July 2012.  However, the amendment has, in reality, been made already, as a result of the ATO Interpretive Decision (ATO ID 2010/224) issued in December 2010.