Determining whether the PPS Act applies

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 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.

Selected practical consequence of the operation of the PPS Act — “deemed” security interests, and goods in possession of third parties

As 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.

See Selected practical consequence of the operation of the PPS Act — “deemed” security interests, and goods in possession of third parties.

Using the PPS Register — the essentials

Commonly 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 registrations

Registration 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 registrations

A 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 results

The 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 apply

The 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 checklists

In 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.