The Personal Property Securities Act
Personal property security agreements
Priority and subordination
Default and enforcement
The Personal Property Securities Act 2009 (Cth) (PPS Act) is a law regarding security interests in personal property. Whether the PPS Act applies depends whether the matter or transaction captures a security interest as defined by the PPS Act.
The definition of “security interest” is in two parts. The first is the “in substance” definition, and the second is a list of three kinds of “deemed” security interests. This guidance note starts with explaining the two parts to the definition of “security interest”, and provide practice tips so legal practitioners can apply the relevant concepts in transactions they are managing or advising on.
This guidance note also explains the connection with Australia that must be satisfied before the PPS Act applies to a security interest.
See Determining whether the PPS Act applies.
Attachment, enforceability against third parties and perfectionGenerally, something is enforceable if a party with an obligation can be forced or ordered to comply. In other words, enforceable is an action which can be made effective. It is fair to say a security interest that cannot be enforced is of little use to a secured party.
In order to be enforceable over a particular piece of collateral, s 19 of the PPS Act requires that the security interest in question must “attach” to that collateral. Attachment cannot occur unless the grantor has rights over the collateral that enable the security interest to be granted.
Enforceability of a security interest against a third party is governed by s 20 of the PPS Act, and requires attachment to have occurred, but there is also an additional requirement.
“Perfection” of security interests is of importance in priority disputes between security interests. In addition, a person buying personal property will take the collateral free of any security interests which have not been perfected. The requirements for perfection are contained in s 21 of the PPS Act.
The guidance note explains the concepts and importance of attachment, enforceability against third parties and perfection. It also explains methods of perfection, such as perfection by control and perfection by registration.
A checklist accompanies this guidance note. The checklist consists of a flowchart and accompanying commentary that provides a high level overview on when a party has a security interest that is regulated by the PPS Act, when that security interest is enforceable against the grantor, and when it is enforceable against third parties. In addition, this flowchart will aid the understanding of some key terminology and concepts introduced by the PPS Act, such as an “in substance” security interest and a “deemed” security interest.
See Attachment, enforceability against third parties and perfection.
Selected practical consequence of the operation of the PPS Act — “deemed” security interests, and goods in possession of third partiesAs mentioned above, under the PPS Act, the definition of “security interest” is in two parts. The first is the “in substance” definition, and the second is a list of three kinds of “deemed” security interests. The first part of this guidance note considers the practical consequence of PPS Act “deemed” security interests. In essence, the effect of this “deeming” is that the ownership interests need to be registered.
The second part of the guidance note looks at what legal practitioners need to be aware of regarding goods in the possession of a third party.
Using the PPS Register — the essentialsCommonly referred to as the PPS Register or the PPSR, the Personal Property Securities Register is a single, national, electronic (online) register of security interests in personal property.
This guidance note explains financing statements, and covers practical topics including accessing the register and information contained on the PPSR. It also outlines the role of the Australian Financial Security Authority, and includes practice tips for using the PPSR.
See Using the PPS Register — the essentials.
Making registrationsRegistration on the PPSR is the most common manner in which perfection is completed. With this in mind, legal practitioners should be aware of some general rules about making registrations, as outlined in this guidance note. These rules include the application to registration must be in approved form, the 20-business day rule for registration of security interests granted by a company, and registration can take place before the execution of a security agreement.
Legal practitioners should be familiar with what is required to make a registration, which is also set out in this guidance note.
See Making registrations.
Maintaining registrations — discharge and release, amending and transferring registrationsA discharge or a release of a security interest is a consensual alteration of the security agreement that exists between a grantor and a secured party, whether by new agreement (as in a deed of release) or by an existing provision of a security agreement (for example, release on the occurrence of specified events). The PPSR may need to be updated when a discharge or release of a security interest happens.
The first part of this guidance notes looks at how a registration can be discharged and when a registration should be discharged on the PPSR. It also looks at matters relating to partial discharge.
In some circumstances a practitioner may need to amend a registration. The need for an amendment will generally be triggered by a change in the security agreements between the grantor and the secured party.
The second part of this guidance note explains which parts of a PPS registration can be amended and how to do so. It also considers how to manage the parts of a PPS registration that cannot be amended.
An effective registration must record the details of the grantor and the secured parties in accordance with the rules in the PPS Act. The details of the grantor or the secured party may change in various scenarios, such as where a grantor or a secured party that is a trust or partnership is allocated a new ABN.
The third part of this guidance note guide legal practitioners through the steps of adding or removing grantors, and changing the secured party.
See Maintaining registrations — discharge and release, amending and transferring registrations.
Interpreting PPSR search resultsThe information about security interests that is recorded on the personal property securities register (PPSR) is likely to be relevant to the following transactions, among others:
- •taking security over personal property;
- •buying or leasing personal property;
- •acquiring shares in a company that has granted security interests; and
- •entering into a commercial relationship generally with an organisation or an individual.
In these scenarios, legal practitioners may want to search the PPSR to learn:
- •who are the secured creditors with whom an organisation or an individual has existing relationships; and
- •what security interests exist in the personal property that is the subject of a transaction.
This guidance note looks at some practical aspects of the interpretation of PPSR search results, including:
- •how to manage incomplete descriptions of collateral in search results;
- •how to distinguish between narrow securities and broad securities; and
- •how to deal with search complexities.
See Interpreting PPSR search results.
When the PPS Act does not applyThe PPS Act contains a list of interests in personal property to which the PPS Act does not apply. This guidance note explains what some of the key excluded interests are, and notes that the adverse consequences for non-perfection do not apply to these interests.
See When the PPS Act does not apply.
Other checklistsIn addition to the flowchart and accompanying commentary on the enforceability of security interests against grantor and third parties, this subtopic also includes two checklists — a general checklist for secured parties and a checklist regarding specific issues to consider before making a registration when acting for a secured party. These are useful tools for legal practitioners when working on a matter or a transaction that involves the taking of personal property securities.
See Flowchart on enforceability of security interests against grantor and third parties, General checklist for secured parties and Checklist for acting for a secured party — specific issues to consider before making a registration.
Legal practitioners need to have a good understanding of what is a security agreement, the general rules about security agreements, and matters relating to the form of security agreements. This guidance note explains these matters, and includes practical tips such as the identification of certain property by serial number in security agreements, how to obtain a copy of the relevant security agreement, and how to provide a copy of the security agreement, if requested.
See Security agreement — the essentials.
General security agreement and specific security agreementGenerally, a general security agreement, or a GSA, is used when a secured party wishes to take an interest over all of the grantor’s personal property as security for payment or performance of an obligation. “All of the grantor’s personal property” would include, for example, tangibles such as goods, and intangibles such as intellectual property. This document is often in deed form, and may therefore be called a general security deed, or GSD.
Generally, a specific security agreement, or a SSA, is used for securing an interest in various types of collateral that is “personal property” to which the Personal Property Securities Act 2009 (Cth) (PPS Act) applies (such as serial numbered collateral like motor vehicles, and goods), and “other property” that is personal property outside the scope of application of the PPS Act. Again, this document is often in deed form, and may therefore be called a specific security deed, or SSD.
This guidance note provides an overview of the GSA and the SSA, with practice tips to aid legal practitioners when drafting or reviewing these documents.
See General security agreement and specific security agreement.
Drafting security agreementsIt is useful for legal practitioners to be aware that, while an agreement may not be strictly necessary, it is highly desirable. This is explained in this guidance note.
This guidance note also contains specific drafting tips regarding:
- •personal property under the National Credit Code (NCC), which is contained in Sch 1 of the National Consumer Credit Protection Act 2009 (Cth);
- •personal property not under the NCC;
- •default;
- •contracting out of the PPS Act’s enforcement provisions; and
- •confidentiality.
A checklist accompanies this guidance note. Titled “Checklist for drafting and reviewing security agreements”, when preparing or reviewing a security agreement, legal practitioners should consider the matters in this checklist.
See Drafting security agreements.
Selected key concept — grant of securityThere are a number of key concepts that are relevant in all security agreements, including both a GSA and a SSA. One of these key concepts is the grant of security. Under the PPS Act regime, an entity who is a borrower or debtor is said to grant a "security interest" instead of what use to be referred to as the granting a "charge". This entity who is providing the security interest is now called the “grantor”, and is much less likely to be called the “chargor”.
This guidance note explains the provisions in a security agreement regarding the grant of security. These provisions are sometimes called the “security clause”. Examples as well as practice tips are provided to help legal practitioners apply the knowledge in practice.
See Selected key concept — grant of security.
Selected key concept – restrictions on dealing with the collateralAnother key concept that is relevant in security agreements is the restrictions on dealing with the collateral. As a start, legal practitioners need to have a good understanding of the meaning of “collateral”:
- •Collateral is personal property offered up by a grantor as security for a debt or other obligation owed to sellers, financiers or other secured parties.
- •Collateral is personal property that has a security interest attached to it.
A secured party will not want a grantor to have the ability to deal with the collateral. As such, a secured party will usually not permit a grantor to do, or to agree to do, things such as sell, assign, transfer, lease, licence, or part possession with the collateral. This guidance note explains the important concept of restrictions on dealing with the collateral by way of, among other things, practical examples.
See Selected key concept — restrictions on dealing with the collateral.
Other undertakings concerning the collateralAn undertaking is a promise by a party to another party to do or not to do certain things.
In a security agreement, a secured party will generally require a grantor to promise not to deal with the collateral, unless:
- •the grantor has the secured party’s prior written consent; or
- •the dealing is expressly permitted by the relevant loan or facility agreement or by another finance or transaction document.
It is common for a security agreement (whether a GSA or a SSA) to contain a number of other undertakings concerning the collateral. This guidance note provides examples of these undertakings, and explain what they mean. A focus is placed on undertakings regarding maintaining the collateral, which is usually driven by the secured party who will want the collateral maintained by the grantor in a manner that reasonably preserves the secured party’s interests in the property.
See Other undertakings concerning the collateral.
Other rights and powers to support securityThis guidance note considers two matters regarding the use of a power of attorney when taking personal property security or when drafting a GSA or a SSA. These 2 matters are:
- •the use of a power of attorney where the grantor appoints the secured party to be its attorney so the secured party can perfect its security interest with respect to “controllable” collateral by control; and
- •the use of a power of attorney where the grantor appoints the secured party to be its attorney with the power, after an event of default has occurred, to action certain matters.
This guidance note also recaps important PPS Act concepts including perfection, and in particular, perfection by control.
The Personal Property Securities Act 2009 (Cth) (PPS Act) sets out the circumstances in which a person purchasing property governed by the PPS Act is able to take the property free of security interests: Pt 2.5 of the PPS Act.
These rules are designed to protect purchasers and facilitate sales of personal property. They are often referred to as the “taking free” provisions or the “taking free” rules. They effectively extinguish the security interest at the time of the transaction, for eg, in the case of a buyer, the buyer has good title to (takes free of) person property with an unperfected security interest without any encumbrances. For this reason, this is also referred to as the “extinguishment provisions” or the “extinguishment rules”.
This guidance note explores some of the key “taking free” rules, including the general rule regarding unperfected security interests (s 43 of the PPS Act) and taking business assets free of security interests (s 46 of the PPS Act, the “in the ordinary course of business” rule).
This guidance note also provide practice tips on selected common scenarios which legal practitioners will find useful.
See Taking free of security interests under the PPS Act.
Priorities in general under the PPS ActThe PPS Act provides for a priority regime applicable to a competition between two or more security interests. Division 3 of Pt 2.6 of the PPS Act outlines the rules governing the priority of security interests.
This guidance note is designed to be a good starting point for legal practitioners who need to advise generally on priority where there is a competition between security interests by covering the likely, common scenarios. The key concepts that are explored include the “default” priority rules, perfection of security interests.
See Priorities in general under the PPS Act.
PMSI priority under the PPS ActSubject to limited exceptions, purchase money security interests (PMSI, pronounced “pim-sey”) are a special type of security interest that has “super priority” over other security interests if it is registered on the PPSR within the timeframes prescribed by the PPS Act.
This guidance note is designed to provide a good starting point for legal practitioners who need to advise generally on PMSI priority by, first, providing guidance regarding PMSI perfection, then, by covering the likely, common scenarios where a priority contest involves a PMSI. It also provides practical guidance to legal practitioners who encounter the not-uncommon situation where the secured party may have missed the critical timeframes for PMSI registration.
See PMSI priority under the PPS Act.
Priority/subordination agreementsIf a secured lender is prepared to allow repayment by the borrower to another secured lender (over the same asset), while the borrower is solvent, but is concerned that particular priority arrangements will operate if either of the lenders enforces its security, the lenders may agree to enter into a deed of priority.
Typical arrangements under a deed of priority include:
- •the holder of the first security may agree that a second security will have first priority to either a specified amount (of principal plus interest and costs) or (less commonly) for all the monies secured by the second security; and
- •the holder of the first security may agree that its first priority will be limited to a specified amount plus interest and costs.
This guidance note looks at priority arrangements, including “subordination agreements” under the PPS Act. It introduces to legal practitioners the industry model documents that may be utilised in a transaction, and considers the issues that a legal practitioner may encounter when drafting, reviewing or negotiating of a deed of priority with subordination provisions.
Chapter 4 of the Personal Property Securities Act 2009 (Cth) (PPS Act) contains rights and remedies of enforcement of security interests on the default under a security agreement. This means security agreements do not need to include these remedies as parties to the agreement can instead rely on the Ch 4 enforcement provisions in the PPS Act.
It is useful to note that the Ch 4 enforcement provisions complement other rights and remedies available. Such additional rights may be contained in statute law, common law or equity. There are some security interests to which Ch 4 does not apply: s 109 of the PPS Act. For example, Ch 4 does not apply to interests in goods that are located outside Australia.
Generally, under Ch 4, on the default of a grantor under a security agreement, the secured party can commence enforcement action, and the first step in enforcement is for the secured party to seize the collateral. If a secured party has a security interest that is subordinate to another security interest in the collateral, the secured party with the higher priority security interest is entitled to seize the collateral from the subordinate secured party. Having seized and obtained possession of the collateral, the secured party may either dispose of or retain the collateral. This guidance note overviews each of these matters, and is designed to be a good starting point for legal practitioners who need to consider matters relating to enforcement under the PPS Act.
See Enforcement under the PPS Act.
Rules that apply after enforcement under the PPS ActPart 4.4 of the PPS Act contains rules about steps to be taken after a security interest in collateral has been enforced. These rules deal with:
- •the order of distribution of personal property or its proceeds;
- •the transfer of title to collateral; and
- •the redemption of collateral or the reinstatement of security agreements before disposal and when certain enforcement notices are not required.
This guidance note overviews each of these rules, and is designed to be a good starting point for legal practitioners who need to consider matters relating to enforcement under the PPS Act.
See Rules that apply after enforcement under the PPS Act.
Enforcement of a security interest under the PPS Act that secured a Code-regulated loanThe National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) includes the National Credit Code (the Code) as Sch 1 to the NCCP Act.
When a security interest under the PPS Act secures a credit contract governed by the Code, the enforcement of the security interest is also governed by the provisions of that Code.
This guidance note outlines the specific provisions of the Code relating to mortgages over goods. It also considers how reg 4.1 of the Personal Property Securities Regulations 2010 (Cth) reconciles the notice provisions of the PPS Act with those of the Code by waiving compliance with some of the PPS Act provisions, provided the equivalent Code provisions are satisfied.
See Enforcement of a security interest under the PPS Act that secured a Code-regulated loan.
Considerations when enforcing a security that is not a first securityThis guidance note is designed to provide a list of considerations to help legal practitioners, as a starting point, to provide advice on matters relating enforcing a security that is not a first security. These considerations include whether there is sufficient equity, the requirement of consent, and distribution of proceeds.
This guidance note also includes commentary on lessons regarding enforcing a security that is not a first security from selected leading case law, including Zanzoul v Westpac Banking Corporation (1995) 6 BPR 97,549; [1996] ANZ ConvR 368; (1995) NSW ConvR 55-749; BC9504830 regarding possession and Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at 301; 260 ALR 71; [2009] HCA 44; BC200909276 regarding guarantors and subrogation.
See Considerations when enforcing a security that is not a first security.
