LexisNexis Practical Guidance®

Loans by lenders in the course of a lending business to individuals where the loan is to be used for personal, domestic or household purposes or to purchase, renovate or improve residential property for investment purposes (or to refinance such credit) are governed by the National Consumer Credit Protection Act 2009 (Cth) (NCCPA) and the National Credit Code (found in Sch 1 of the NCCPA).

The legislation contains a regime under which:

• •credit providers and credit representatives must be licensed;
• •licensees must comply with certain obligations;
• •certain notices must be given to borrowers;
• •fees must be disclosed;
• •the credit contract must contain prescribed information;
• •specified procedures must be complied with in relation to enforcement of a loan; and
• •responsible lending conduct must be complied with by lenders and credit representatives.

See Regulation of consumer credit.

The concept of security involves a lender being granted rights over property, so that in the event of a default, the lender will have the right to be paid out of the proceeds of such property in priority to unsecured creditors and liquidators or trustees in bankruptcy.

The main types of security interests are:

• •mortgages;
• •charges (other than PPSA security interests);
• •specific security agreements;
• •general security agreements;
• •pledges; and
• •"quasi" securities (guarantees, negative pledges, deeds of subordination).

Since the commencement of the Personal Property Securities Act 2009 (Cth) (PPSA), the following types of interests are, among others also considered to be security interests if they, in substance, secure the performance of an obligation in relation to personal property (ss 12(1) and 12(2) of the PPSA):

• •conditional sale agreements (including retention of title arrangements);
• •leases of personal property (eg equipment leases);
• •hire purchase agreements;
• •consignments;
• •transfers of title; and
• •flawed asset arrangements.

Some other interests are “deemed” by the PPSA to be security interests even if they do not, in substance, secure the performance of an obligation: s 12(3) of the PPSA.

See Types of security interests.

When taking security, a lender will be concerned to ensure that the security is effective against unsecured creditors, liquidators or trustees in bankruptcy or other secured creditors with a security interest in the same asset. This usually is achieved by taking possession, taking control (in the case of marketable securities and some other forms of personal property) or, and more commonly, registering the security (where registration is available) on the Personal Property Securities Register.

The priority rules for competing personal property security interests are contained in Pt 2.6 of the PPSA. If a competing security is a transitional security interest (as defined in the PPSA), ss 320 to 324 of the PPSA will also be relevant.

If the security is a mortgage over land, priority will be in the order of registration. If a security is not registrable, the general priority rule is that the first in time prevails.

See Priorities and registration.

Subordination can be regarded as a form of quasi security. It consists of an arrangement between lenders (and generally the borrower) in which it is agreed that one lender (or lenders), for example the junior creditors, will not demand repayment of the debt owed to them by the borrower until the debt owed to another creditor, for example the senior creditors, has been repaid in full.

See Quasi securities.

The procedures which must be followed in relation to the enforcement of securities will mainly depend on the following factors:

• •is the grantor of the security a corporation or an individual;
• •is the secured property land or other property; and
• •if the secured property is land, in which state or territory is it situated.

See Enforcement of securities.