The Personal Property Securities Act 2009 (Cth) ("PPSA") governs security interests in personal property (i.e. all property excluding real estate) and provides a framework for registering and protecting security interests – the Personal Property Securities Register ("PPSR").
For the purposes of the PPSR, personal property security interests can arise from a range of forms, including:
- Mortgages;
- Charges;
- Retention of title clauses in sale agreements;
- Financing leases.
If you own or run a business, it is extremely important to understand how the PPSA affects you and your rights.
Creating an enforceable right under the PPSA
A security interest must "attach" to the collateral (secured property) in order for the interest to be enforceable. Attachment is effected if the grantor has rights in the collateral and does something (such as accept money) by which the security interest arises.
A security or sale agreement should always include a clause referencing the application of the PPSA to the agreement. It must be in writing and signed by the grantor to be enforceable against other secured parties.
"Perfection" under the PPSA
"Perfection" is a form of protection for a secured party that is stronger than mere “attachment” of the security interest. A security interest is perfected in a series of steps:
- The security interest has “attached” and is enforceable against third parties; and
- The security interest is registered on the PPSR; or
- The collateral is in the possession or control of the secured party.
Perfection affects the priority of the security interest relative to other security interest in the collateral. This is most significant in the event of the insolvency or bankruptcy of the grantor. The easiest and safest way to achieve perfection is by registering the interest on the PPSR, as this makes it easier to prove the timing of the perfection of the interest.
Purchase Money Security Interest ("PMSI")
A PMSI is a security interest in collateral defined in section 14 of the PPSA. It can be created by:
- a seller who secures the obligation to pay the purchase price;
- a person who provides value to purchase the personal property;
- a lessor or bailor under a PPS lease;
- a consignor who delivers property under a commercial consignment.
Registration of a PMSI affords a “super priority” that defeats all other security interests in the collateral. This includes any interests created and registered before the PMSI.
All Present and After-Acquired Property ("ALLPAAP")
An ALLPAAP describes a class of collateral that can be registered on the PPSR. It refers to personal property over which the grantor has an interest at the time the registration is made on the PPSR, and personal property acquired after the registration is made.
Searching the PPSR
The PPSR should always be searched before entering into a transaction. The PPSR may be searched for details of a particular registration or security interests registered against a particular grantor. Searching enables parties to discover other security interests in collateral and provides an indication as to priority of debt repayment should the grantor become insolvent or bankrupt.
Keep in mind the search must be for an authorised purpose under the PPSA (to protect privacy), and there are search fees.
Consequences of not registering on time
The relevant security interest must be registered on the PPSR within the time limits dictated by the PPSA.
Failing to register interests within the requisite time period leads to consequences such as:
- loss of priority in debt repayments against other secured creditors;
- a third party (eg. a purchaser) taking the relevant property free of the security interest/s;
- loss of the secured interest altogether in the event of an insolvent grantor; or
- loss of “super priority” over certain interests such as the PMSI that would otherwise put repayment of your debt ahead of other creditors’ debts.
This blog is not intended to be a comprehensive description of the PPSR. More information about key elements of the PPSA scheme can be seen at the Australian Financial Security Authority website: https://www.ppsr.gov.au/key-concepts-explained.
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