Attachment, enforceability against third parties and perfection

Generally, 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.