Background to PPSA

The Personal Property Securities Act, commonly called the PPSA, now regulates personal property security interests in Australia. Before its implementation in 2009 there were over 70 pieces of legislation throughout the federal and state governments which determined the rights of creditors and debtors. The myriad of legislation led to inconsistencies between the states as to how security interests would be created and enforced.

In 1993 the Australian Law Reform Commission recommended a national overhaul of the securities legislation and the implementation of the PPSA. It was eventually introduced in 2009 for the purpose of creating a uniform regime for securing finance using personal property.

At a root level it codified all the pre-existing rules of security interests and introduced the Personal Property Security Register. The use of this registry has become particularly important in the modern day when enforcing security interests and prioritising competing interests between multiple creditors.

Laws of Receivership, Liquidation and Administration

The PPSA does not go so far as altering the existing law regarding liquidation, receivership and administration. At most it simply requires the creditor to register their security interest in order to protect it. For example a creditor has the rights to seize, retain or dispose of the collateral under the PPSA however may not enforce those rights against a receiver who has appointed under the Corporations Act.

Under the Corporations Act a winding up order does not affect the rights of a secured party subject to the requirement that a secured party must register and perfect their interest.

Attaching and Enforcing Security Interests

A security interest is enforceable against a grantor in respect of particular collateral only when the interest has been attached to the collateral, collateral being the term used for personal property which is subject to a security interest. Two conditions must be met for an interest to be attached to the collateral:

• the grantor must have some form of right over the personal property; and
• either the creditor gives the grantor new value for the security interest, such as a payment of money, or the grantor does an act by which the security interest arises.

Once the security interest is attached to the collateral it can be enforced against the grantor however if the creditor wishes to enforce their interest against a third party who may have purchased the collateral the creditor must have control of the collateral or have a written agreement with the debtor acknowledging the existence of the security interest. This agreement must be signed by both the creditor and the debtor.

Perfecting a Security Interest

Although attaching an interest can be effective in securing the performance or payment by the debtor the most comprehensive level of protection arises once the creditor has perfected their interest. This is particularly important especially in determining the priority of creditors competing interests.

A security interest is perfected when:

• the security interest has been attached to the collateral and the requirements are met in order to enforce it against the grantor and any third party interest; and
• the financing statement or security interest agreement is registered with the Personal Property Security Register; or
• in certain circumstances the creditor controls the collateral.

To register a security agreement with the Personal Property Security Register a financing statement evincing the existence of the security interest must be submitted. It must contain the details of the secured party, the details of the grantor or the serial number of the collateral if the collateral is the sort which must be registered by serial number, identification of the collateral, the end time of the registration, an indication whether the interest is subordinate to any other interest, whether the interest is a purchase money security and any other detail the PPSA requires be included.

Correctly completing the financing statement is crucial as any inconsistencies may have the effect of rendering the security interest unperfected. Consultation with a solicitor will conclusively determine the necessary requirements which must be included in each circumstance.

It is important to note that some types of collateral are required under the PPSA to be registered in accordance with a serial number. This includes cars, watercraft and boats, planes and other motor vehicles; the serial number is dependent on what type of vehicle it is. For example a car must be registered by using its VIN number or chassis number for older models.

Once a security interest is perfected not only does it give the creditor priority over the body of unperfected interest but also from the interference of new rights. There are exceptions to perfected security interests holding the highest priority under the PPSA which determine that in some circumstances even a perfected interest may become redundant.

Unperfected security interests will be vulnerable to a bona fide third party purchaser who purchases the collateral. They also become vulnerable if the debtor becomes insolvent meaning the security interest will vest in the debtor and become available for distribution amongst their creditors. Further they are vulnerable to an execution creditor who seizes them to secure payment of a judgment debt.

Priority Rules for Creditors Competing Interests under the PPSA

The PPSA establishes a default set of rules which give creditors some ideas of how their competing interests may be treated. They are namely:

• Perfected interests take priority over unperfected interests
• Competing perfected interests are prioritised first in order of the creditor with control of the collateral then to perfected purchase money security interests then in order of the longest continuously held security interest. If these do not exist then priority is determined by order of perfection
• priority between unperfected interests is settled by order of when the interest was attached to the collateral

The best way for a creditor to ensure their interests are adequately protected is to consult our Brisbane Commercial Lawyers when first establishing the security interest. From there a solicitor can explain the best way to create the interest and protect it from other creditors who may have a similar interest in the collateral.