Personal Property Securities Act

The Personal Property Securities Act 2009 (Cth) (PPSA) came into force in 2012. It affects artists whose artworks is placed on consignment with art galleries.

Prior to this change in the law, an artist whose work was on consignment with a gallery could assert their property ownership rights if the gallery went into liquidation and regain possession provided that consignment could be proved. The most common way was through a consignment agreement signed by both parties. If the artwork had been sold but payment not received prior to liquidation, payment to the artist would be prioritised out of the gallery's assets.

Now, if the artist has registered the gallery on the Personal Property Securities Register (PPSR), the artworks will have the highest priority in the case of gallery bankruptcy and be returned to the artist. However, in the case of liquidation if the artist has not registered, the artworks on consignment will be dealt with as security interests and used to secure the gallery's debts. The existence of consignment agreements will be irrelevant.

NAVA acknowledges the potential benefits of the PPSA in simplifying the law and practice. However, in reality for artists whose work is on consignment, it is having the opposite effect.

NAVA notes the challenges are that:

• most artists are unaware of the PPSR and continue to rely upon consignment agreements
• artists who are aware of the PPSR may not register because they find the registration process overly complicated and may require a lawyer to assist
• there is financial disincentive associated with registration
• there are misconceptions about ownership and the implications of the PPSA.

Submissions to the Statutory Review closed on 25 July 2014 and the Final Report on the review was tabled before Parliament on 18 March 2015. The review was conducted by finance lawyer, Mr Bruce Whittaker.

The information that the review team was seeking to gather from artists and the industry included the following:

• your awareness of the PPSA and its possible implications for your art business, as well as your understanding of how the PPSA and associated Register (PPSR) work
• your use of the PPSR including, if you have used it, how easy or difficult you found it to use and how long the registration process took. Or if you have not used it, any particular reasons why you haven't
• the number of registrations you have on the PPSR
• if the new PPS regime has had any positive or negative effects on you and your art business
• if you are using the PPSR, the review team would appreciate information on how the register has operated in situations where galleries have gone into liquidation.

To read the final report and or review submissions, go to the PPSA Review.

Update 26 March 2015

In the Report on Personal Property Securities Act, there is a reference to NAVA's submission and a recommendation (17) in response at pp. 73-74.

NAVA researched and wrote a submission to the Government review which is considering the operation and effects of the Act and will pay particular attention to the experience of small businesses (artists fall into this category).

We contended that artists whose work is not registered - who are the majority - are at risk of losing their works. This is both a financial and emotional loss. Furthermore, in the case of bankruptcy the artworks are usually sold at a much lower level than their market value. This is detrimental to artists' reputations and impacts their capacity for future earnings.

NAVA recommended two options:

1. that the Government radically simplifies the registration process, holds galleries responsible for ensuring registration and signing a consignment agreement and that an education campaign for artists is funded and implemented by the Government in partnership with the art industry;
2. that commercial consignments should be considered outside the scope of the PPSA. The effect of this would be that consigned artworks would be considered the property of the artist as per the consignment agreement in the case of gallery bankruptcy. This would be a reversion to the practices before the enactment of the PPSA that relied on the principle of ownership.

Although Mr Whittaker did not support NAVA’s recommendations, he believed the issues expressed in the submission could be dealt with in a different manner. His conclusion was that a change be made to the definition of “commercial consignment” under the section 10 of the PPSA where paragraph (e) would read:

(e) a consignee for sale, lease or other disposal if the consignee is or should reasonably be generally known to be selling or leasing goods of others.

This addition was based on the belief that artists’ positions rely on what is known by third parties about the arrangement of particular galleries that the artists sells through. Mr Whittaker expected that third parties know, or should know that art galleries commonly sell art works on a consignment basis. Under that assumption, it would be unlikely that a sale of an artwork on consignment through an art gallery would give rise to a commercial consignment for the purposes of the PPSA. Consequently, it would be unnecessary for the artist to take steps to protect their interest.

You can currently register your works with a commercial gallery under the existing PPSA at the PPS Register.