• The Personal Property Securities Act 2009 (Cth) (‘PPSA’) made fundamental changes to the taking of security over personal property to secure repayment of loans or other contractual obligations.
  • The PPSA replaced more than 70 different statutes across all Australian jurisdictions that dealt with registration of different types of securities including:
    • motor vehicles,
    • bills of sale,
    • ship mortgages,
    • company charges,
    • crop liens, and
    • stock mortgages.
  • The principal objective was to consolidate the legislation into a single national regime.
  • The PPSA’s main provisions came into operation on 30 January 2012.
  • The PPSA is largely modelled on Canadian and New Zealand legislation, and all three have Art 9 of the US Uniform Commercial Code as their common basis.

Overview of the legislation

  • The PPSA provides for the registration of security interests in personal property.
  • ‘Security interest’ and ‘personal property’ are broadly defined in the PPSA.
  • The PPSA sets down requirements to be satisfied for a security interest to be enforceable against the grantor of the security interest and against third parties.
  • An important issue arises where a grantor of a security interest gives security to multiple lenders using the same property.
    • Issue of property of lenders applies.
  • In some circumstances a third party may acquire the property free from the security interest which had earlier been given by the grantor (eg a debtor in return for a loan).

The main concepts of the Act

The meaning of security interest

  • A security interest is an interest in personal property provided for by a transaction that in substance secures a payement or performance of an obligation: s 12(1).
    • This focuses on the substance rather than the form.
  • Examples of security interests included in the definition are the following, where they secure payment or performance of an obligation — s 12(2):
    • chattel mortgages,
    • conditional sale agreements,
    • hire-purchase agreements,
    • leases of goods,
    • pledges,
    • trust receipts,
    • consignments,
    • fixed and floating charges,
    • assignments or transfers of title.
  • Security interests extend to three classes of transaction, regardless of whether they secure in substance the payment or performance of obligations — s 12(3):
    • tranfers of accounts and chattel paper,
    • commercial consignments of goods, and
    • certain leases and bailments of goods.
  • ‘Personal property’ is any kind of property (tangible or intangible) other than real property.
    • It includes licences: s 9.
    • Examples include:
      • motor vehicles,
      • household goods,
      • business inventory,
      • intellectual property, and
      • company shares.
  • The PPSA does not apply to certain specified security interests, regardless of these interests securing in substance the payment or performance of obligations.
    • Example — liens that arise by operation of law: s 8(1)(b).
    • Example — security interests in fixtures: s 8(1)(j).
  • The Act applies to security interests given by corporations, partnerships, other legal entities and individuals.

Enforceability, attachment and perfection of security interests

Attachment
  • Personal property is known as collateral if it is the subject of a security interest.
  • A security interest is enforceable against a grantor in respect of particular collateral (eg personal property used to secure a loan) when it attaches to the collateral: s 19(1).
    • Two requirements must be met — s 19(2):
      • the grantor must have rights in the collateral or have power to transfer rigths to the secured party, and
      • either value is given for the security interest or the grantor does an act by which the security interest arises: s 19(2).

Enforceability against third parties

  • A security interest will be generally be enforceable against a third party in respect of particular collateral only if the security interest is attached to the collateral and one of the following applies — s 20:
    • the secured party has possession of the collateral, or
    • the secured party has perfected the security interest by control, or
    • a security agreement is evidenced in writing that is:
      • signed by the grantor, or
      • adopted or accepted by the grantor by an act or omission that reasonably appears to be done with the intention of adopting or accepting the writing.
  • The written evidence must contain a description of the particular collateral or a statement that a security interest is taken in all of the grantor’s present and after-acquired property (or specifying excluded property).
Perfection
  • A security interest is perfected when the secured party has done all they can do to protect their security interest from competing security interests.
  • A security interest will generally be perfected in relation to collateral if it has attached to the collateral and is enforceable against a third party — s 21, and:
    • the secured interest is registered in the Personal Property Securities Register, or
    • the secured party has possession of the collateral (other than as a result of seizure or repossession), or
    • for certain kinds of collateral such as bank accounts and investment instruments (eg shares or debentures), the secured party has control of the collateral.

Priority between security interests

  • The PPSA contains provisions to deal with the priority between competing security interests in collateral.
  • Priority rules apply when the same personal property is subject to two or more security interests.
  • If the debtor defaults, the rules determine the order of priority in which collateral is to be applied to meet the claims of various secured parties.
The general priority rules
  • A perfected security interest has priority over an unperfected security interest in the same collateral: s 55(3).
    • A security interest in personal property that is registered in the Personal Property Securities Register will take priority over an interest in the property which has not been registered or perfected by possession or control.
    • This means that if a later security interest is registered, it will take priority.
  • Priority between unperfected security interests in the same collateral is determined by the order of attachment so that the first takes priority over the later: s 55(2).
  • Priority between two or more security interests that are perfected is determined by the time perfection occurred: s 55(4)–(5).
    • If two security interests have been perfected by registration, the first-in-time will take priority.
      • However if the secured party takes possession of the collateral before the security interest of another person has been registered, the secured party with possession will take priority.
  • The PPSA confers ‘super-priority’ on security interests perfected by control.
    • Such a security interest takes priority over all other secured interests in the same collateral: s 57(1).
Priority of purchase money security interests
  • A security interest is a purchase money security interest (‘PMSI’) when the secured party has provided the finance required by the grantor to acquire the collateral.
  • Examples include:
    • Security interests that secure an obligation to the seller to pay the purchase price (eg property sold on a retention of title basis).
    • Security interests that secure an obligation to a secured party in relation to new value (a new debt) provided by the secured party to allow the grantor to acquire the collateral.
    • Certain leases and bailments of goods.
    • Commercial consignments of goods.
  • The holder of a purchase money security interest has ‘super priority’ in respect of the collateral because the security interest has a higher priority than other security interests in the same collateral granted by the same grantor that is perfected by either possession or registration: s 62.
Other special priority rules
  • The PPSA contains specific provisions, including rules dealing with priority of security interests in relation to:
    • certain agricultural interests: ss 84–86.
    • security interests in goods that become an accession (installed in or affixed) to other goods: ss 88–97.
    • security interests in personal property that have been manufactured, processed, assembled or commingled (mixed with goods of the same kind) with other property: ss 99–103.
    • intellectual property (patents, trade marks, designs, copyrights, circuit layouts, plant breeders’ rights) and intellectual property licences: ss 105–106.

Acquiring personal property free of security interests

  • The PPSA provides for situations in which personal property may be acquired by a third party free of a security interest.
  • Those circumstances include:
    • Unperfected security interests — a buyer or lessee of personal property for value takes the personal property free of an unperfected security interest in the property (eg where the security interest has not been registered: s 43.
    • Serial number incorrect — a buyer or lessee of personal property takes the property free of a security interest in the property if — s 44:
      • the regulations provide that the personal property of that kind may or must be described by serial number in a registration, and
      • searching the register, immediately before the time of sale or lease, by reference to the correct serial number of the property, would not disclose the registration of the security interest.
    • Motor vehicles — a buyer or lessee for value of a motor vehicle takes the motor vehicle free of a security interest in the vehicle if — s 45(1), (3):
      • the regulations provide that motor vehicles of that kind may or must be described by serial number (definition of motor vehicle in Personal Property Securities Regulations 2010 (Cth) reg 1.17), and
      • searching the register between the start of the previous day and the time of sale or lease would not disclose the registration of the security interest, or the seller or lessor is in a class of persons prescribed by the regulations (that is, holds a licence to deal or trade in motor vehicles: Personal Property Securities Regulations 2010 (Cth) reg 2.2).
        • This definition includes all motor vehicles that have been assigned vehicle identification numbers under the Motor Vehicle Standards Act 1989 (Cth) or have been assigned a manufactuer’s number: Personal Property Securities Regulations 2010 (Cth) reg 2.1.
        • This does not apply if the buyer or lessee has actual or constructive knowledge of the security interest or that the sale or lease constitutes a breach of the security agreement: s 45(2), (4).
          • The bona fide purchaser of a motor vehicle from a car dealer will normally acquire the vehicle free from the security interest created over the vehicle.
    • Ordinary course of business — a buyer or lessee of personal property takes the personal property free of a security interest given by the seller or lessor if the personal property was sold or leased in the ordinary course of the seller or lessor’s business of selling or leasing personal property of the kind: s 46.
      • The does not apply if the buyer or lessee has actual knowledge that the sale or lease constitutes a breach of the security agreement.
    • Personal, domestic or household property — a buyer or lessee of personal property for value that the buyer or lessee intends to use predominantly for personal, domestic or household purposes takes the property free of a security interest if the market value given is not more than $5,000 or other prescribed amount in the regulations: s 47.
      • This does not apply if the personal property is of a kind that the regulations provide may or must be described by serial number in a registration, or the buyer or lessee has actual or constructive knowledge that the sale or lease constitutes a breach of the security agreement.
      • Investment interest in the ordinary course of trading — a person who buys an investment instrument (eg shares or debentures) in the ordinary course of trading on a prescribed financial market takes the investment instrument free of a security interest: s 49.
Rights of secured party
  • The PPSA contains provisions concerning the rights of secured parties where a transferee takes personal property from a transferor (who gave the security) free from the security interest in the property.
    • The rights of the secured party are subrogated to the rights (if any) of the transferor, including the transferor’s right to receive any part of the purchase price for the property which has not been paid.
      • However, payment of the purchase price by the transferee before receiving notice of the secured party’s right discharges the obligation of the transferee to the extent of the payment: s 53.

Enforcement of security interests

  • The PPSA includes detailed enforcement provisions dealing with the seizure, disposal and retention of collateral in the event that the debtor defaults on the secured obligations: pt 4 ss 108–144.
    • Many of the provisions can be excluded by agreement when the collateral is not used predominantly for personal, domestic or household purposes: s 115.
  • All rights, duties and obligations which arise in relation to the enforcement provisions must be exercised honestly and in a ‘commercially reasonable manner’: s 111.
    • The provisions do not apply to property in the hands of receivers or receivers and managers: s 116.

Relationship with the National Credit Code

  • Where collateral is used for consumer purposes and the National Credit Code (‘NCC’) applies to the security interest, the PPSA and the NCC will operate concurrently and a secured party will have to comply with both: s 119.
  • Where both contain similar provisions relating to enforcement, a secured party who has complied with the relevant provision of the NCC is taken to have complied with the corresponding obligation in the Act: PPSA s 119(2).

Personal Property Securities Register

  • The PPSA provides for the establishment and maintenance of a Personal Properties Securities Register by the Registrar: s 147.
  • A person may apply to register what is referred to as a ‘financing statement’ with respect to a security interest or certain personal property: s 150.
    • The financing statement can be registered before any secured transaction takes place.
  • In general, a financing statement will contain information that includes:
    • details of the secured party,
    • the grantor’s details (unless the collateral is consumer property and required to be described by serial number),
    • an address for service of notices on secured parties,
    • a description of the collateral (particularly whether it is consumer or commercial property), and
    • the period of registration.
  • Registration for consumer property or property described by serial number may be made for up to seven years and renewed for further periods of up to seven years.
    • Commercial property may be registered for an indefinite period, or for a term of up to 25 years and subsequently renewed: s 153.
  • On application to the Registrar, a person may be given access to search the register provided that it is for an authorised purpose: ss 170–173.
    • The register can be searched by reference to either the grantor’s details (which will disclose security interests registered against the grantor) or, in the case of serial-numbered property, the unique serial number referable to that property (eg a motor vehicle): s 171.
      • The grantor’s details will not be registered if the security interest relates to collateral that is serial-numbered consumer property.
  • The register is a single online-register for all personal property securities in Australia.
  • Registration is not mandatory, nor is there a time limit for registering an interest.
    • Failure to register (thus to perfect) a security interest will have consequences for the secured party should an issue of priority of competing interests arise.
      • Additionally, the PPSA invalidates unperfected security interests (but not deemed security interests that are unperfected) on the bankruptcy, winding up or administration of the grantor: ss 267, 267A, 268.
        • See also: Albarran v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337.