An overview of the Personal
Property Securities Act 2009 (Cth)
Jason Harris BA LLB (UWS), LLM (ANU), FCIS
Senior Lecturer, UTS Faculty of Law
[email protected]
9514 3772
What is the PPSA?
Key changes to existing law
Exclusions from the PPSA
Transitional rules
Types of security interests
Attachment and perfection
Priority rules
Taking free rules
Overview of enforcement action
Personal Property Securities Act
• PPSA 2009 (Cth)-operational from 30 January 2012
• Subject to 2 year transitional period, but is still
operational now and applies fully to new security
• A new system, with concepts previously unknown in
Australian law
• Will affect most types of commercial transactions
• Based on PPS laws in NZ, Canada (originated in US (UCC
Article 9))
• Replaces more than 40 existing state registration systems
for security interests over personal property with 1 Cth
register www.ppsr.gov.au
Key changes to existing law
• Fixed and floating charge distinction mostly irrelevant
under PPSA
• Distinction between legal and equitable interests (as
security) is irrelevant under PPSA
– May be excluded unless consensual
• Easier to trace into proceeds under PPSA (no need for
fiduciary relationship)
• Form of the transaction is irrelevant (eg mortgage, charge)
• PPSA takes a functional, in substance approach (compare
with current form-based approach)
• Certain transactions that were not previously security
interests (leases, retention of title) are covered by PPSA
(i.e. need to register to maintain priority)
Priority no longer based on title-PPSA treats title of lessor
or supplier with ROT as a security interest
Fixed and floating charges
• Pt 9.5 provides that (s339):
– floating charges shall be read as charges over
circulating assets
– fixed charges shall be read as charges over noncirculating assets
• However this only applies to security interests
arising after commencement (s318)
• Circulating assets are defined in s340(5)
– Note exceptions in s340(2)-(4A)
– Definition of control in ss341, 341A
Key points for lawyers
• Don’t rely on the transitional provisions to protect your client
• PPSA will affect most types of commercial transactions-don’t
assume that the arrangement must involve traditional security
• Arrangements that are not commonly thought of as being
security interests are now included
– Leasing, bailment and consignment arrangements
– Supply of goods under retention of title
– Some trust arrangements
• Failing to understand obligations can result in a loss of priority
– Operation of priority rules, vesting rules and ‘taking free’ rules
• Requirements for perfecting and enforcing a security interest
must be carefully adhered to
– Focus on requirements for valid security agreements
• PPSA offers additional enforcement rights to secured parties
• Variation of corporate insolvency rules in Corporations Act
Operation of the PPSA
1. Is the arrangement excluded? (s8)
2. Does it involve an in substance security interest? (s12(1))
If not, does it involve a deemed security interest? (s12(3))
3. If so, has the secured party ‘perfected’ their security interest?
Attachment of the security interest
Enforceability against third parties
Perfection through possession, control or registration
4. If so are there any other competing security interests over the
same collateral?
Apply the priority rules (eg s55)
Check for special types-eg PMSI (ss14,62,63), control over accounts
(ss57, 75)
5. Apply the enforcement rules (Ch4)
Are they excluded (eg receiverships)? (ss109, 115)
6. Check for taking free (extinguishment) rules (Pt 2.5)
Exclusions from the PPS (s8)
Various exclusions including:
• Statutory security interests (eg arising under tax
• Security interests that arise by operation of law
(eg common law and equitable liens)
• Set-off and netting arrangements
• Interests in land and fixtures
• Special purpose trusts (Quistclose trusts)
• Statutory exclusions under state and federal law
(eg certain mining and fisheries licenses)
*Note: s8(2) may apply some PPSA provisions*
Key concepts
• Debtor (who owes money or obligation)
• Grantor (party who gives security interest to the
secured party-but may be someone else, eg secured
• Secured party (creditor who obtains a security interest
over collateral)
• Collateral (personal property that is subject to a
security interest)
– Can give rise to proceeds-security interest will
automatically attach to proceeds (s32)
• Financing statement (PPSA registration form)
• Security agreement (agreement or act creating a
security interest between a debtor and secured party
or a writing evidencing such an agreement)
– Takes effect according to its terms (s18(1))
Transitional provisions
• Operation of the PPSA is varied for transitional security interests (s308)
• The PPSA deems (for transitional security interests)
– enforcement against third parties (s311)
– attachment at RCT (s321)
– time of perfection at RCT (s322)
• Note: limitation on deemed perfection (s322(2))
• Note: exception to deemed perfection for transitional sec int if registrable
but not registered (eg charge not properly registered) (s322(3), PPS Reg
• Ch 4 (enforcement) does not apply to transitional interests (s314)
• Changes to fixed/floating charge terminology in Pt 9.5 only apply to use
of those terms in security agreements at or after the RCT (s318)
– See also Corps Act ss51, 51A
• (PPSA sec int does not include a transitional sec int)
• Priority rules: ss320, 322A-324
• Note problems with ASIC migrated data (ABN/ACN): s337
Types of security interests
• Title and form of transaction irrelevant
• General definition-s12(1)
– Specific examples-s12(2)-note: only if in substance
secured payment or performance of an obligation
• Deemed security interests-s12(3)
– Transfer of account/chattel paper; commercial
– Includes PPS lease (defined in s13):
• Lease or bailment of goods for more than 1 year or indefinite
• Serial numbered goods-term of 90 days or more or indefinite
• Lessor or bailor must be in the business of leasing or bailing
– Only bailments for reward (not gratuitous)-s12(3)
Section 12 definition
(1) A security interest means an interest in
personal property provided for by a transaction
that, in substance, secures payment or
performance of an obligation (without regard to
the form of the transaction or the identity of the
person who has title to the property).
‘The PPSA does not rely on either the common
law notion of title or the equitable concepts of
beneficial interest or equity of redemption to
resolve priority disputes. Rather, for those
interests that come within the scope of the Act,
the PPSA provides a compendium of rules
establishing priority rankings both as between
different security interests as well as between
security interests and other interests in the
collateral, with no regard to the question of who
actually has title to the collateral.’
BOM v Innovation Credit [2010] 3 SCR 3 at [19]
Case example
Waller v NZ Bloodstock Limited [2006] 3 NZLR 629
• Secured creditor had charge over debtor co property
• 2 years later owner of horse (lessor-NZ Bloodstock)
leased horse to debtor
• Secured creditor then perfects security interest upon
introduction of PPS
• Lessor did not register its security interest in horse under
PPS- (assuming as ‘owner’ there was no need)
• Lessor terminated lease and seized horse-secured
creditor appointed receiver and sought to recover horse
• Secured creditor had priority over unperfected interest
of lessor-even though lessor owned the horse
• Failing to register a security interest can result in losing
rights over the collateral
Waller v NZ Bloodstock
[75] “The result follows Parliament’s decision that
the kind of leasehold interest retained by NZ
Bloodstock [lessor] should, as a matter of policy,
be treated as a mere security interest which
requires registration to be perfected. Since that
did not occur, [secured creditor’s] competing
security interest which was duly registered and so
perfected took priority.
The major lessons of the case are twofold: the
statutory altering of the proprietary rights of a
lessor; and the crucial importance of registration.
These are policy choices which have been made
and significantly alter what would otherwise have
been the position.”
Steps to obtain ‘perfection’ of a sec int
• Attachment of the security interest (s19)
• Enforceability of the security interest against
third parties (s20)
• Perfection by registration, possession or
control (s21)
Attachment of security interest (s19)
• Important for rights:
– Between debtor and secured creditor (s19)
– Between secured creditor and third party (s20)
• Attachment under s19 only allows rights against grantor-rights against 3rd
parties requires more
• No enforcement unless security interest attaches to collateral (s19(2))
– Grantor must have ‘rights in the collateral’
– Value must be given
• ‘What is considered as rights in the collateral encompasses a range of interests
beyond legal and equitable title…Without rights in the collateral then the nemo
dat rule continues to apply and no security interest can be granted’
iTrade Finance Inc v BOM (2011) 77 CBR (5th) 231 at [44]
• Note: use of floating charge terminology does not create deferred attachment
– Attachment under s19 is not the same as crystallisation of a floating charge
• Security interest over goods bailed or leased under PPS lease attaches when
grantor obtains possession of goods (s19(5))
Enforcement against 3rd parties
• Secured creditor may enforce security interest
against 3rd party if:
– Security interest attached to collateral; and
– Secured creditor has possession of collateral,
perfected interest by control (only limited
collateral can do this) or has a security agreement
that covers the collateral (s20(1)(b)(iii)-note
requirements for security agreements (s20(2))
• Effectively, this means most security devices
will need a security agreement
Security agreements
• Note s18, note definition in s10
• Requirements in s20(2):
– Evidenced in writing
– Signed by grantor or adopted or accepted with
intention to adopt or accept the writing
– Writing gives description of collateral (or all
present and after acquired)
– Collateral description must be more than
commercial or consumer property
• Writing may be made up of multiple joined
Perfection rules
• Secured creditor must ‘perfect’ their security interest in order to obtain
• Must maintain ‘continuous perfection’
• Note application of temporary perfection rules
• Perfection can occur by (s21(2)):
– Registration;
– Possession of the collateral (but not by seizing on default-see s24 for def of
possession); or
– Control of the collateral (limited categories of collateral only)
• In addition, attachment must occur and secured party must have rights
against 3rd parties (s21(1))
• Attachment and registration can occur in any order, but priority does
not arise until both occur-i.e. until ‘perfection’
• Multiple transactions can be perfected by a single registration (called a
financing statement)
• Note: special perfection rules for proceeds of collateral (s33)
– Other special rules for transferred and returned collateral
Default priority rules (s55)
• Knowledge of prior interest is largely irrelevant
• Perfected security interest beats unperfected
• Unperfected interests are determined by order of
• Priority between security interests determined by
earliest ‘priority time’ (s55(5)):
– registration;
– perfection by possession or control; or
– temporary perfection (eg by transfer of collateral)
• Priority time must remain ‘continuously perfected’
until enforcement (see s56)
• Useful to register a financing statement to ensure
continuous perfection even if possession or control
also applies
Special priority rules
• Perfection by control beats all other forms of perfection (note
only some forms of collateral may have security interests
perfected by control) (s57)
• Priority over proceeds and advances will be same as for
original security agreement (ss33,58)
• Payment of debt in ordinary course of business (s69)
• Negotiable interests, chattel paper and negotiable documents
of title (ss70-72, 79-81)
• Transferred collateral (s34)
• Bank security interests in ADI accounts held by them beat all
other security interests (s75)
• Accessions (Pt 3.3)
• Commingled goods (Pt 3.4)
• Voluntary subordination possible (s61)
• Transitional security interests (s320)
Purchase money security interest (PMSI)
PMSI enjoy special priority, so it is important to identify
Section 14
a) a security interest taken in collateral, to the extent that it
secures all or part of its purchase price;
b) a security interest taken in collateral by a person who
gives value for the purpose of enabling the grantor to
acquire rights in the collateral, to the extent that the
value is applied to acquire those rights;
c) the interest of a lessor or bailor of goods under a PPS
d) the interest of a consignor who delivers goods to a
consignee under a commercial consignment.
Priority of PMSI
• Perfected PMSI will generally take priority over other
security interests (except those perfected by control
or over accounts for new value-ss57,64,75)
• Registration of financing statement must state that
security interest is a PMSI
– PMSI over goods held as inventory (s62(2)):
• Perfection by registration must be done before grantor takes
possession of goods
– PMSI over goods not held as inventory (s62(3)):
• Within 15 business days after the grantor takes possession of
– Incorrectly marking as a PMSI will invalidate the
registration (s165)
PPSA v non-PPSA interests
Determined by s73:
• Special priority for general liens arising in
relation to the provision of goods or services
• Determined by a statute (s73(2))
• Determined by ministerial declaration (s73(3))
• Canadian cases have held that where there is
no statutory rule the general law first in time
rule applies
Taking free rules
Buyers or lessees
• For value, take the personal property free of an
unperfected security interest in the property (s43)
• Special rules for serial-numbered goods (ss44,45)
• Ordinary course of business (except buyer/lessor
of serial no property held as inventory, or actual
knowledge of breach of agreement) (s46)
• For new value (s10) $5k or less, where intention to
use property for personal, domestic or household
purpose (s47)-exceptions in s47(2)
Overview of enforcement action
• PPSA Part 4-detailed rules and remedies
– Does not apply to deemed security interests and certain arrangements
involvement investment instruments (s109)
– Some provisions excluded for household property (s109(5))
– s115-limited contracting out possible
– Provisions do not take away other legal rights or obligations parties may
have (s110)
– Does not apply if grantor is a corporation and secured creditor appoints a
receiver (s116)
– Must act honestly and in commercially reasonable manner (s111)
– Rights are cumulative (s114)
• Main power is seizure (s123) and sale (s128), although
foreclosure is also possible (s134)
• Obligation to give notice of action
• Any secured party can take enforcement action-higher
priority creditor may serve notice to take control (s137)
Finding information on the PPSA
www.ppsr.gov.au (PPS Register)
http://www.ag.gov.au/PPS/Pages/default.aspx (Cth A-G Dept, PPS page)
Looseleaf practitioner services
• Australian Personal Property Securities Reporter (CCH) (From April 2012)
• Personal Property Securities in Australia (LexisNexis)
• Personal Property Securities (Thomsonreuters)
• Harris and Mirzai, The Annotated Personal Property Securities Act (CCH)
• Cseti, Understanding the PPSA (CCH)
• Meehan, The PPS Guide (self published) www.ppsguide.com.au
• Journal of Banking and Finance Law and Practice (Thomsonreuters)
• Australian Banking and Finance Law Newsletter (LexisNexis)

similar documents