Compliance costs and risks to small businesses in
Australia’s hire and rental industry
Submission
to
Bruce Whittaker
Review of the
The Personal Property Securities Act 2009 Cth.(PPSA)
Contacts:
Phil Newby
Chief Executive Officer
Hire & Rental Industry Association
Elevating Work Platform Association
Mobile: 0417 212 627
Email: PhilNewby@ewpa.com.au
Oliver Shtein
Bartier Perry
Level 10, 77 Castlereagh Street
Sydney NSW 2000
Mobile: 0408 466 286
Email: oshtein@bartier.com.au
CONTENTS
1. Background - Australia’s hire and rental industry ...................................... 3
2. The problem ................................................................................................................. 3
3. Magnification of the concerns for small business ...................................... 3
4. Specific concerns ...................................................................................................... 4
5. Possible solutions..................................................................................................... 8
6. General / other comments ..................................................................................... 9
ATTACHMENT A ............................................................................................................. 11
Example showing complexity of the PPSR and potential consequences of
getting it wrong ..........................................................................................................................11
ATTACHMENT B ............................................................................................................. 12
Cross hire - example showing how hire businesses are at risk when hiring
to each other to meet customer needs ..........................................................................12
ATTACHMENT C ............................................................................................................. 13
PPSA compliance costs for typical hire business ....................................................13
Summary of costs: ...................................................................................................................18
1.
Background - Australia’s hire and rental industry
The hire industry is represented by two peak national bodies, the Hire and Rental Industry
Association (HRIA) and the Elevating Work Platform Association (EWPA).
Together the associations represent over 1,100 businesses, or 66 per cent of all hire employer
enterprises.
Australia’s $6.6 billion hire and rental industry provides a critical service to the construction and
mining sectors by facilitating flexible access to earthmoving and heavy equipment, medium to
small equipment for trade contractors, cranes and access equipment, mining related equipment,
scaffolding, forklifts and portable accommodation.
The industry employs over 18,000 people across a range of businesses, from large players such
as Coates Hire and Kennards Hire to a majority of small and medium enterprises, many of which
are family owned.
The industry is driven by the preference of large numbers of construction and mining firms to hire
equipment, rather than purchasing it, based on a desire to remain flexible, reduce capital and
maintenance expenditure and gain access to the latest technologies.
Indefinite hire is a significant feature of the industry providing flexibility to customers.
Whilst many hires are indefinite to accommodate the needs of customers and minimize the need
for documentation, hires are predominantly short term. The associations estimate that the average
hire period of their members is about 8 days.
We note however that hire periods are variable depending on the type of equipment and the kinds
of use to which equipment is applied. For example goods such as road barriers or portable
buildings are typically hired for longer periods and may be hired for more than a year.
Goods such as scissor lifts (‘motor vehicles’ under the current definition) are not typically hired for
more than a year but one of our members advises that about 20% of their fleet may be on hire for
periods approaching or exceeding a year. These hires may be longer because in those cases the
goods are part of the ‘core’ of hired access equipment used in a major construction project such as
construction of a hospital. Scissor lifts that are not part of the customer’s ‘core’ requirement may
come and go from the project site offering flexibility and economy to the project.
2.
The problem
PPSA has had a number of unintended and detrimental effects for the hire and rental industry. The
industry has two major concerns:
a) Property owned by hire companies can be lost when a customer defaults or becomes
insolvent. This drastic sanction is out of proportion to any policy gain which the industry
can perceive from the PPSA.
b) PPSA is extremely complex and the regulatory, financial and administrative burden
imposed on hire businesses to ensure that they are correctly registered on the PPSR, in
order for their assets to be afforded limited protection, is excessive and onerous.
3.
Magnification of the concerns for small business
The associations submit that whilst the concerns above are common across the industry they are
magnified for small business for the following reasons:
a) Small hire businesses cannot afford to generate or obtain expertise about PPSA. A small
family business cannot be compared with a finance company or bank with access to the
legal advice, precedents and systems necessary to navigate the PPSA - which is
unquestionably highly complex.
3
b) Small hire businesses are generally exposed to significantly greater credit risk:

Their customer base may comprise smaller companies in the construction
industry

They will have few credit assessment and credit protection skills

They may have greater customer concentration – i.e., exposure to the possible
insolvency of one customer compared to an industry major with a large and
diversified customer base.
The history of PPSA in New Zealand and Australia demonstrates that the winners in PPSA
disputes tend to be the banks and finance companies. Cases such as NZ Bloodstock and
Portacom come to mind where the large and well-advised institution prevailed over the hire
business. These outcomes have been replicated in Australia cases such as Spiers
Earthworks and in the as yet uncounted number of cases where hire businesses have been
confronted by controllers appointed by banks and other financiers claiming title.
Typically in these contests there is no reason to think that the presence of hired equipment
deceived the bank as to the financial condition of the business. The gains appear to have
been windfalls delivered by PPSA.
In the circumstance where a hire business loses its capital to its customer’s creditors
because of PPSA imperfection of the hire, the .institution that lends to the hire business will
normally have other security in the form of personal guarantees or real property security over
directors’ assets to fall back on. This pushes the loss to the individuals owning the hire
business.
The associations submit that the overall pattern of outcomes occurring and expected to occur
under PPSA will be to deliver windfall gains to large financiers and banks at the expense of
hire businesses which as noted above are, in the associations’ experience, typically small
businesses.
4.
Specific concerns
These are outlined below:
a) Complexity
Small hire businesses do not fully understand the system and the legislation allows no
leeway to individuals and businesses who cannot grasp its legal complexity.
Attachment A shows a number of understandable errors or (even slight) delays that
could lead to loss of ownership of a hire business’s assets if a customer becomes
insolvent.
The .financing statement has been framed with no sympathy at all for the unsophisticated
user or anyone who is less than thoroughly conversant with PPSA principles. Many
questions appear to be unnecessary but the wrong answer may be fatal to the
registration.
Hire industry personnel must have an understanding of at least the following:

The wording of the ‘PPS lease’ definition and subtle differences between security
interests which arise at inception of the hire and those that become subject to
PPSA subsequently

PMSIs and priority concepts in finance law and the exceptions to what is a PMSI.
A lay person would instinctively think that a hire was nothing to do with ‘purchase
money’

The way to identify trusts and the workings of the ABN and ACN/ ARBN identifiers
– ABNs have previously only been the province of Federal tax law and the
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workings of trusts and ABNs are not widely understood outside the tax and
accounting professions

The difference between transitional and non-transitional security interests

The collateral classes and the definition of ‘motor vehicle’ in particular

Sound drafting principles in the framing of collateral descriptions so that they are
wide enough to cover the hired goods but not unduly wide (which will lead to
additional administration costs in answering questions from third parties dealing
with the customer)

What are ‘proceeds’ and why they are described in the financing statement as ‘All
present and after-acquired property’ – which is also a collateral class

What the term ‘inventory’ means under section 10 of the PPSA (for PMSI
purposes) but also under Part 9.5 (which is actually the relevant issue for the
inventory box in the financing statement)

The additional timing requirements under section 588FL of the Corporations Act if
(as usual) the customer is a company

The documentation requirements in section 20 of the PPSA.
b) PPSA is imposing large compliance costs on the industry and impeding
businesses.
For those hire businesses who seek to defuse the effect of PPSA if their customer
becomes insolvent, PPSA demands that those businesses act like financial institutions,
fully document hires and confront a piece of highly complex financier-driven legislation to
assure their ownership. Businesses willing to hire urgently and be flexible are forced to
take risks with their capital. A list of typical compliance steps and costs is provided in
Attachment C.
c) Indefinite hires, which form a key aspect of flexibility within the industry, carry the
most risk for hire businesses under the PPSA system.
Construction businesses typically need equipment for indefinite periods and often very
urgently. Construction businesses are also more prone to insolvency than many other
businesses so the risk of loss to the hire business is heightened. The drafting of the
PPSA makes it clear that any ‘indefinite’ hire, whether lasting for 10 minutes or 10 years,
is a PPSA ‘security interest’ from its inception.
The drafting of the PPSA leaves uncertainty as to whether a hire that is of uncertain
duration but within an overall time cap is ‘indefinite’ or not.
But even if this uncertainty were resolved, the concept of an ‘indefinite’ hire as
automatically requiring a security interest entraps hire businesses who, unaware of the
dangers, try to help their customers by offering flexibility and inadvertently enter into
indefinite hires or fail to document hires that are finite. See paragraph (e) below.
d) Sub-hire, also called cross-hire, is another substantial part of the industry where
PPSA has created a complex problem making hire businesses take on risk in
dealing with each other.
Hire businesses hire to each other to ensure that customers’ needs are met. Under the
PPSA system a hire business can lose its equipment even if it registers under PPSA if its
industry colleague doesn’t protect the equipment. A typical sub-hire example is provided
in Attachment B.
The system has effectively forced a hire business to run a credit and insolvency risk
when providing equipment to an industry colleague. If the colleague has made errors in
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PPSA compliance and suffers insolvency as a result, the hire businesses will lose capital
assets, and it will not matter that it made the appropriate PPSA registrations against the
industry colleague.
The problem appears to the industry to be an intractable structural problem arising out of
the policy decision to extend security interest concepts to things that are not really
security interests – notably the PPS lease.
The associations expect that your review will have submissions from financiers to the hire
industry expressing similar concerns. The associations note that it is impracticable for
hire businesses to monitor or audit the PPSA compliance practices and financial
condition of their industry colleagues who are also typically their competitors.
e) Indefinite hire should not be a PPS lease
The associations state emphatically that they do not understand the argument that
inclusion of indefinite hire is a necessary integrity or anti-avoidance measure in the
PPSA. See the example at paragraph g) below as to the absurdity that flows from
treating indefinite hire as a security interest.
The Government has proposed in the Explanatory Memorandum to the Personal
Property Securities Amendment (Deregulatory Measures) Bill 2014 that hire businesses
put in a ‘longstop’ date in hire agreements so that there is a maximum term of one year.
However this would not be the actual hire term. It is questionable whether such a
longstop prevents the application of section 13(1)(b) of the PPSA which includes as a
PPS lease any hire:
b)
for an indefinite term (even if the lease or bailment is determinable by
any party within a year of entering into the lease or bailment);
The ‘longstop’ suggestion seems to contemplate the parties settle on an artificial hire
period not knowing what the actual hire period will be, even if they may know it will almost
certainly be less than a year. Such a course of action will necessarily result in hires that
have ‘nominal’ terms or end dates that are not connected to the actual intentions of the
parties – opening the door to the argument that the stated or ‘long stop’ term should be
disregarded and the real term construed as truly ‘indefinite’ because it is not known.
The argument that hire businesses should document the longstop in effect also amounts
to the promotion of red tape. A short term documented hire is safe. A short term
undocumented hire is not.
Hire businesses will be unable to do flexible and accommodating business with
customers and may trip over the requirements.
Example:
HireCo hires a scissor lift to FredCo for 9 months. There is a longstop of 12 months
in the hire terms.
Near the end of the 9 months FredCo rings HireCo and asks if FredCo can keep the
lift for a bit longer because FredCo is using it in a construction job that has been held
up by site conditions.
A helpful employee of HireCo emails FredCo’s principal as follows: ‘Fred – just
confirming you can keep the lift as long as you need it’.
A liquidator would no doubt argue that the hire became indefinite at that point.
There are many other ways in which a hire business can trip up over the documents and
requirements. For example using a hire or delivery docket that has outdated or
incomplete contractual terms on it will be argued to give rise to new separate contract
without the longstop. New business may have to be signed up urgently – this is a typical
6
occurrence when hired goods are delivered early in the morning or late at night when
sites are available.
One justification offered for the ‘indefinite hire PPS lease’ was that it provided certainty to
hire businesses that they could not be accused of making unjustified registrations against
customers. Some large industry players took the view that they should amend their
customer terms so that every hire became indefinite. Reviewing each customer account
to assess if there really was a security interest was simply too time-consuming for them.
The practical effect was that these hire businesses made registrations against literally all
their customer base – thousands or tens of thousands of customers in some cases.
Consequently they have to incur the costs of answering queries every time a customer
sells other equipment, refinances, sells its business etc. In the general hire industry this
problem cannot be solved by improved collateral descriptions since the range of general
hire equipment is very wide. In any event the legislation only requires a collateral
description of ‘Other Goods’ or ‘Motor Vehicle’.
The associations submit this was an extraordinary imposition of red tape not only on the
hire businesses who felt compelled to make the registrations and now have to attend to
enquiries about them but to all the small and large businesses and government bodies
who now add hire companies to the list of businesses registering against them.
The irony here is that most of the hires in question would not breach the one year time
threshold (or even the 90 day threshold currently under amendment).
Accordingly a large administrative burden was created for no sound policy reason.
f) The PPSA assumption that leases of more than a year are equivalent to security
interests should not be accepted
The Explanatory Memorandum to the Personal Property Securities Amendment
(Deregulatory Measures) Bill 2014 states:
Whether other lease arrangements meet the definition of a security interest can be
more difficult to determine. Generally, short term leases of personal property will be
unlikely to meet the definition, but as lease terms becomes longer, especially as they
begin to approximate the useful life of the leased property, they become increasingly
likely to be a security interest.
The associations estimate that the typical useful life of most hired equipment, in terms of
its retention by the hire business, is 8 years. However this is variable and will depend on
the kind of equipment and the locations it is used at, and the intensity of use. But it will
be a multiple of the PPS lease thresholds provided for in the legislation.
The typical period of a finance lease (in substance security interest) for equipment that
would be considered eligible for finance leasing is in our experience four to six years.
On this basis the associations submit it would have made sense for the PPS lease
threshold to be at least two or three years.
g) The PPS lease concept creates a two tier system and doubles legal complexity
PPSA creates a bifurcated legal regime with some personal property in and some out of
the legislation - based on arbitrary time frames and leading to outcomes which seem to
make no sense in terms of the policy objectives that have been put forward in support of
the PPS lease concept:
Example Three different power drills (big, medium and small) are on hire to Joe in
Joe’s yard. They are all owned by Fred’s Hire. All the drills are brightly painted and
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engraved ‘Property of Fred’s Hire’. Fred has not made an effective PPSR registration
against Joe.
The big drill was hired for 350 days and has been in Joe’s yard for 9 months. The
medium drill was hired for 350 days but has been there for 366 days with Fred’s
consent. The small drill was hired ‘For as long as you need it Joe’ and had been in
Joe’s yard for three days. Joe goes broke.
Fred’s Hire:



loses the small drill (deemed a security interest as indefinite hire)
loses the medium drill (deemed a security interest as hire more than a
year)
keeps the big drill – not deemed a security interest
Note that in this example the small drill had been ‘apparently owned’ by Joe (PPSA takes
no account of the engraving or markings) for only a period of three days. The example
also demonstrates the absurdity that flows from treating an indefinite hire – in this case
one that only lasted a few days as equivalent to a security interest.
In the above example an insolvency practitioner or owner would also need to contend
with two separate systems. Some goods will be under PPSA and a whole different law
will apply to them as compared to other goods which will be subject to the ‘traditional’
concepts of ownership. Equally this means that to know the legal position hire
businesses will need to grapple with two systems.
This position can be contrasted with retention of title or other ‘in substance’ security
interests where the particular business practice will always fall clearly into the PPSA.
h) PPSA is partially based on the assumption that commercial lenders are attracted to
providing credit to businesses based on false assumptions about the ‘apparent’
wealth of businesses or ‘apparent’ ownership of equipment that is actually under
hire.
The reality is that the nature of the sectors which hire equipment (construction and
mining) mean that people are aware that significant numbers of assets will be under hire.
With hire being absolutely ubiquitous in the industry there is no assumption that
construction or mining companies own all of their assets.
Even if this evil of apparent wealth were a reality it would not be a consideration
demanding the extraordinary sanction of loss of capital assets.
Whatever may have been the case in North America there has been no demonstrated
policy imperative to upset the well-accepted assumption of the primacy of ownership.
PPSA has turned these concepts upside down for no discernible benefit and will cost hire
businesses their equipment and undoubtedly, in the most unfortunate cases, their
livelihoods and life savings,
5.
Possible solutions
The associations propose an amendment excluding hires from the PPSA provided they are part of
an 'ordinary hire' business. This proposed amendment need not affect 'in substance' security
interests such as finance leases – to which the PPSA could still apply.
To accommodate the policy concern about ‘apparent ownership’ the exclusion could be drafted so
as to apply only to ordinary hire business activities and perhaps only where the equipment is
marked as the property of a hire business at the inception of the hire.
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It has been said that the PPS lease concept is needed as a ‘bright line’ as otherwise there will be
uncertainty as to what is caught as an in substance interest. The associations accept that in some
cases this can be a difficult question in some contexts. But these cases are rare in the hire
industry. Hire businesses are not financiers and their business model is to stick to the shorter term
hires that are the core of their industry.
What the existing PPS lease concept does do however is draw a ‘bright line’ right where it causes
uncertainty for ordinary hire businesses and forces them to negotiate complex definitions and two
different legal systems of property.
Whilst our preferred approach is to exclude ‘ordinary hire’ businesses from the PPSA, an
alternative approach would be to extend the PPS lease threshold period to 3 years. The PPS
lease would only arise if the contractual term were 3 years or once the actual term got to three
years. This would only provide relief to the industry if indefinite hire were no longer deemed to be a
PPS lease.
6.
General / other comments
We also have some other comments on less structural issues, and which are not all directed
particularly at hire industry or small business issues:
A. The Act has been drafted to be most unforgiving despite its extreme complexity.
Annexure A to this submission illustrates the complexity and pitfalls. Illustrated there are
only some of the ways that an understandable mistake can lead to loss of assets.
B. The Act does not answer the question whether PMSI priority can be obtained in the case
of an arrangement that falls into section 13(1)(d) and is not registered in the time
provided for in section 62.
For example take a lease for a stated term of 320 days and the lessee is allowed to keep
the goods for another 50 days (370 days in total). At inception there is no PPS lease
because it was not for more than one year.
But at day 366 it falls into para (d). If the lessor makes a registration only once it realises
there is going to be a security interest can the lessor get PMSI priority? On the face of it
no - because under section 62 there has to be a registration 'before the end of 15
business days after the day the grantor, or another person at the request of the grantor,
obtains possession of the collateral'. (In some cases the 15 business day grace period
doesn’t apply.) In this example the lessee got possession 320 or more days earlier.
C. The financing statement asks a question about whether the collateral is ‘inventory’ which
is impossible to answer. The legislation provides that this question is authorized for the
purposes of Part 9.5. There is widespread misunderstanding even amongst lawyers that
the term ‘inventory’ has the meaning given for it in section 10 of the Act. In fact it has the
meaning given for it in Part 9.5. How does a hire business or retention of title supplier
answer this question which is only authorised by the Act to be asked for the purposes of
Part 9.5 – a transitional provision at the end of the PPSA which is only about charges?
What purpose does the question serve anyway?
D. There is a vesting rule in section 588FL of the Corporations Act. It operates in
circumstances (failure to register within 20 business days of the ‘security agreement’)
which are different to the vesting rule in the PPSA itself. There are no flag posts at all in
the PPSA to alert a reader to the existence of section 588FL. Even if there were, section
588FL (like the PPSA itself) would be utterly indecipherable to typical hire business
principal.
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The associations submit that the application of this rule to hire of any kind is
inappropriate. Hire businesses should not be expected to master such arcane rules. The
Corporations Act charges provisions never previously applied to threaten hire businesses
and that Act should, in the associations’ view, never have been extended to affect hires
as it now does.
We look forward to any comments or questions.
Phil Newby
Chief Executive Officer
Hire and Rental Industry Association
Elevating Work Platform Association
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ATTACHMENT A
Example showing complexity of the PPSR and potential consequences of getting it wrong
The following example illustrates how a hire business (‘HireCo’) could be ruined by PPSA and
complexities with the PPSR. Footnotes have been included which refer to the legislation. The
example presents a series of typical situations.
In April 2012 GrantCo gives Opportunity Bank a security over all its assets. Opportunity Bank
registers this security interest against GrantCo on the PPS Register.
In August 2012 GrantCo takes a generator on hire for 2 years from HireCo. A 2 year hire is a
‘security interest’. GrantCo uses the generator to provide a service to its customers1.
HireCo registers its security interest against GrantCo on the PPSR. In December 2012 GrantCo
enters insolvency. HireCo will lose its machine to Opportunity Bank if any of the following occurred
(this list is not exhaustive):
1. HireCo failed to tick the box ‘purchase money security interest applies’ on the online PPS
Register form2
2. HireCo registered its security interest even a day after the generator was delivered to
GrantCo3
3. HireCo registered its security interest before the generator was delivered but the
registration was made more than 20 business days after the date of the hire agreement
between GrantCo and HireCo4
4. When it registered, HireCo wrongly ticked the box indicating the registration was
‘transitional’ when the hire agreement was post 30 January 2012 and the security interest
in fact was non-transitional5
5. In the HireCo registration, GrantCo was identified by its ACN. However, GrantCo’s credit
application stated that GrantCo was trustee of the Grant Family Trust.
The financing statement at www.ppsr.gov.au asked ‘Does the grantor have an ACN’ and
HireCo (understandably) answered ‘Yes’.
HireCo did not realise that it should have answered ‘No’ and registered against the ABN
of the trust6.
The generator that HireCo has lost was very expensive and financed on lease from Big Bank. Big
Bank terminates the lease. GrantCo becomes insolvent.
1
So it is deemed to be ‘inventory’ under paragraph (b) of the definition in PPSA s.10
PPSA s.62(2)(c). Note that if HireCo had bought the equipment from GrantCo this would be
a sale and leaseback and if the PMSI box was ticked that would equally be a fatal defect.
3 PPSA s.62(2)(b)
4 Corporations Act 2001 s.588FL – which has its own vesting rule about PPSA security
interests. Former Corporations Act provisions did not apply to hires at all.
5 PPSA s.337A – transitional registration can’t protect non-transitional interest. There can be
real doubt in many cases whether an interest is or is not transitional.
6 Under the regulations to the PPSA about identifying the grantor where it is a company that is
trustee of a trust with an ABN. There could be other permutations, including where
documentation gives rise to doubt as to whether a grantor is acting in a trust capacity.
2
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Big Bank calls on the personal guarantees given to it by Grant and Mary the directors of GrantCo.
They are bankrupted and lose their home.
ATTACHMENT B
Cross hire - example showing how hire businesses are at risk when hiring to each other to
meet customer needs
Example – HireCo hires a cement mixer to Grant for 366 days. This is a PPS lease and so is
deemed to be a ‘security interest’.
HireCo makes an effective PPSR registration against Grant.
Grant sub-hires the mixer to SubCo. But Grant does not make an effective registration
against SubCo.
SubCo becomes insolvent. SubCo is Grant’s biggest customer and SubCo’s liquidator takes
all the equipment that SubCo has on hire from Grant including the mixer.
This forces Grant into insolvency.
HireCo's rights to the mixer are lost. It can sue Grant but he is broke.
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ATTACHMENT C
PPSA compliance costs for typical hire business
The following sets out typical time and expense for a small to medium hire business $2-5
million turnover - less than 20 employees.
The hired equipment is assumed to include some equipment within the definition of ‘motor
vehicles’ as well as other equipment such as tools, road barriers etc.
The ‘motor vehicles’ could be excavators, trucks, trailer mounted compressors or generators
etc but could also be very slow moving and low powered equipment such as trailers?, walkie
stackers, scissor lifts or boom lifts.
13
Step
Comments
Cost or time
Estimated Cost $
Obtain an understanding of
PPSA
Attend seminars or training. Usually more than one due to the complex
and novel nature of the PPSA for hires.
6 hours or more if
regionally located
Course Cost = $350
Management cost 6 hour @
$120.00 per hour = $720
Confirm the key
implications of PPSA for
the business
Specialist legal advice is inevitably needed. Typical small law firms
traditionally servicing hire businesses do not often have the necessary
expertise.
Advice will normally include:
 Review of documentation and contractual processes to ensure the
documentation standards of PPSA are met
 Advice on how to ‘roll out’ new agreement forms to existing
customers
 Amendments to agreement forms to include PPSA-specific
provisions
 Settle on collateral description, settle on approach to serial
number registration
 Advice on transitional or non-transitional status of customers
having regard to previous contractual practices
 Training to senior executives on the operation of the PPSR
 Advice on risk minimisation in sub-hire (cross-hire)
14
$5,000 - $10,000
plus time spent in
considering advice and
seeking clarifications
and then briefing
colleagues – say 20
hours
Total cost $1,070
Average cost = $7,500
Management time 20 hours
@ 120 per hour = $2,400
Total cost $9,900
Step
Comments
Cost or time
Estimated Cost $
Implement PPSA
procedures
These typically include:
 Establishing secured party group on the PPSR
 Identity and authority of those who can do registrations and deregistrations and receive notices
 Procedures to ensure registrations are made:
o within the timeframe for purchase money security priority
o to avoid vesting under the related rules contained in the
Corporations Act
 Procedures for linking registrations to accounts receivable
information and for storing and retrieving data about registrations
This depends on the number of customers. However, an example might
include 160 customers with 2 registration required per customer (motor
vehicles and other goods). Inevitably some time will be taken in clarifying
the legal nature of the customer:
 Is it a company? Obtain ACN & check against ASIC register
 Is it trustee of a trust?
 What is the ABN of the trust – check against ABR
 Check unusual entities with adviser e.g. individual as trustee of a
trust with ABN – use individual name not ABN,
 co-ops, incorporated associations etc the hire business will
normally need to review constitution
Adviser will usually recommend that for pre-PPSA customers both a
transitional and non-transitional registration be made due to the
uncertainty in the legislation as to what is a transitional security interest.
30 hours including
meetings
Management cost @ $120
per hour 30 hours = $3,600
May include additional
software or procedures
manual amendment
Total cost $3,600
45 minutes per
customer
160 registrations @ 45
minutes (120 hours) @ $40
per hour admin staff =$4,800
320 registration @ $8.00
=$2,560
Undertake general
registrations against
customers
15
Plus registration fees
160 customers by 2
registrations per
customer = 320
registrations $8.00 per
registration
This was initially a
consideration creating
the need for 4
registrations per
customer but ceases 30
January 2014
Total cost $10,960
Step
Comments
Cost or time
Estimated Cost $
Internal training
It is extremely risky to the business’s assets to approach the register
(which is unforgiving) without a good understanding of all terminology and
the operation of the law. But the law is highly complex.
At least two people will need to understand PPSA and the operation of the
register in case one person is absent.
The training will include training on the function of the Australian Business
Register and the ASIC register to establish the correct ABN or ACN
identifier. PPSA adopts a number of different necessary customer
identifiers including ACN and ABN. Hire business personnel will typically
have little pre-existing understanding of the ABN system, the function and
identification of trusts on the ABN, the distinctions between trusts as legal
‘non-entities’ and companies as separate legal entities and so on.
When a staff member leaves more training will be required.
Under PPSA for ‘motor vehicles’ (as so widely defined) full protection is
only conferred if a serial number specific registration for each machine for
each hire is affected.
15 hours including
meetings informal
discussion, double
checking registrations
have been recorded
correctly etc
Average labour cost,
management and
administration $80.00 @ 15
hours = $1,200
20 minutes per machine
per hire
Plus registration fee
$8.00
Average transaction per day
20 @ $8.00 = $160 per day.
20 minutes per
customer per machine
per hire
Plus registration fee
20 de-registrations@ $5.00 =
$100.
Effect serial number
specific registrations
Discharge serial number
specific registrations at the
end of each hire or when a
customer ceases to deal
with the business
Deal with customer enquiry
Due to the need for serial number registration a lot of time may be spent
on deregistration for equipment such as scissor lifts, boom lifts etc but
also for other kinds of equipment.
Inquiries are common and can be very time-consuming. A range of
enquiries are common:
 Customer doesn’t understand PPSA and why hire business says
it has a ‘security interest’
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Depends on number of
customers. For a
medium hire business
can be around 2-3 hours
per week plus legal fee
Annual cost 312 days =
$49,920
Annual cost 312 days =
$31,200
Total cost of serial number
registrations= $81,120
2.5 hours management time
@$120 = $300
Average cost $350
Total cost of customer
Step
Comments

Customer refinancing with their bank and bank requires
confirmation as to the nature of the security interest held by the
hire business. Bank may require a letter confirming.
 Customer selling part of business and requires confirmation as to
assets under hire. Customer may require a letter for the
purchaser or its bank.
 Customer obtains cash-flow finance and factoring company writes
to hire business claiming priority for proceeds
Legal advice will often be needed to deal with enquiries.
Cost or time
Estimated Cost $
to clarify company rights
and obligations. This is
management time.
enquiry $650 per occasion
Task of deciding rights
to complex and risk too
high for admin staff to
cover.
Advice cannot be
obtained from general
legal counsel.
Advice must be obtained
from Expert PPSA
council estimate $550
per hour
Asset recovery from
liquidator
Liquidators are seizing assets and hire companies are needing to fight to
get them back.
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Case: Liftek long term
forklift hire (machine
changed over in the
normal course of
business so registration
lost)
Original cost of the
forklift $27,000
Cost $9,000
(Negotiated to buy back the
fork for $4,500 and legal cost
to $4,500).
Summary of costs:
Obtain an understanding of PPSA
$1,070
Confirm the key implications of PPSA for the business
$9,900
Implement PPSA Procedures
$3,600
Undertake general registrations against customers
$10,960
Internal training
$1,200
Total Normal Cost
$26,730
Effect serial number specific registrations
$49,920
Discharge serial number specific registrations at the end of each hire or
when a customer ceases to deal with the business
$31,200
Total Cost of Serial No Registration
$81,120
Including normal costs
$26,730
Total Cost of Serial No Registration including Normal Costs
$107,850
$650
per enquiry
Deal with customer enquiry
Asset recovery from liquidator
$9,000
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