Introduction to the Personal Property Securities Act 2009 (Cth)
Key concepts, rules and features of the PPSA
Implementation and management issues
The Personal Property Securities Act 2009 (Cth) (PPSA) commenced operation on 30 January 2012.
Comparison between pre-PPSA law and the PPSAThe PPSA, the regulations and the register established under them (PPSR) replace, with a single national Act, countless and conflicting Commonwealth, state and territory laws and registers for company charges, bills of sale, ship mortgages, motor vehicle securities, crop liens, stock mortgages and most other securities affecting tangible and intangible personal property rights. The PPSR is integral to the nationalisation of personal property securities law.
In addition to the above, the PPSA also introduced major substantive changes to the law in force prior to 30 January 2012 which are particularly important for creditors, equipment lessors, consignors, retention of title suppliers, bailors, purchasers of accounts receivable and insolvency practitioners. These changes to the law have had a significant effect on documentation, business processes and risk management.
The PPSA allows for the registration of securities that could not be registered previously. These include securities by individuals over intangible property such as goodwill.
The PPSA also applies to charges that apply to security interests granted by both companies and individuals over personal property. One of the major changes to the previous law concerning securities affected by the PPSA, is that interests that were not previously regarded as securities, eg retention of title clauses and leases of goods, are now regarded as security interests.
See Comparison between pre-PPSA law and the PPSA.
Security interestsThe PPSA defines security interests as any interest or right in relation to personal property provided for by a transaction that, in substance, secures payment or performance of an obligation: s 12(1). In addition to traditional forms of security such as chattel mortgages, fixed charges, floating charges and pledges, the PPSA deems certain rights in personal property to be security interests such as leases of goods, retention of title arrangements, hire purchases and consignments: s 12(2). There is also a subcategory of security interests which are deemed by the PPSA to be security interests regardless of whether they secure payment or performance of an obligation: s 12(3). These deemed security interests include:
- •the interest of a transferee under a transfer of accounts receivable or chattel paper;
- •the interest of a consignor who delivers goods to a consignee under a commercial consignment; and
- •the interest of a lessor or bailor of goods under a PPS lease.
In some circumstances, a third party may acquire personal property free of any security interests. If a transferee (third party) takes personal property free of a security interest, the secured party's rights are subrogated to the rights of the transferor. Payment of the purchase price before the transferee receives notice of subrogation discharges the transferee's obligation (to the extent of the payment).
See Security interests under the Personal Property Securities Act 2009 (Cth).
The PPSA introduces new terminology and concepts into the laws relating to personal property securities. The PPSA also redefines some terminology and concepts which were used in pre-PPSA laws.
Attachment and perfection of security interestsThe PPSA sets out the rules relating to when a security interest will attach to personal property and how a secured party can perfect that interest. A security interest is only effective if it has attached to personal property. A security interest can be perfected by registration, possession and control. Only certain types of property can be perfected by control.
See Attachment and perfection of security interests.
Priority and extinguishment rulesThe PPSA outlines general priority rules and specific rules regarding the priority of interests arising outside of the PPSA as well as the rules for enforcement. There are also rules applying to non-PPS property. Extinguishment rules apply where collateral is purchased or leased. The extinguishment rules under the PPSA deal with situations when a third party transferee can take free of a security interest.
See Priority and extinguishment rules.
Personal Property Securities RegisterThe PPSA and the register established under it — the Personal Property Securities Register (PPSR) replace the numerous existing Commonwealth, state and territory laws and registers for company charges, bills of sale, ship mortgages, motor vehicle securities, crop liens, stock mortgages and most other securities affecting tangible and intangible personal property rights.
The PPSR is administered by the Australian Financial Security Authority.
The PPSA does away with many of the old problems identified with the patchwork quilt of pre-PPSA laws. The PPSA introduces uniform rules dealing with the attachment, perfection, enforceability and priority of security interests.
A single national register, the Personal Property Securities Register (PPSR), has been established for the registration of security interests and is administered by the Australian Financial Security Authority.
The PPSR is the national online database of security interests in personal property in Australia. The PPSR is the centrepiece of the Personal Property Securities Act 2009 (Cth) (PPSA). Among other things, it allows registration of security interests (the most common method of perfection) and it allows users to search for registered security interests in personal property.
A secured party can register a notice called a "financing statement" on the PPSR, in respect of:
- •a security interest; or
- •certain personal property, including impounded motor vehicles, property confiscated under proceeds of crime laws, and property subject to a court or tribunal order restricting dealings with the property or ordering sale of the property: ss 148(c) and 150(1), PPSA and reg 5.3, Personal Property Securities Regulations 2010 (Cth).
Registration occurs on the PPS Register website.
A registration is effective from the time that it becomes available for searching in the PPSR in respect of the secured party (registration time).
Practice Tip: The PPSR is a risk management tool to protect businesses and individuals from acquiring personal property that may contain an existing security interest in that property. If a business acquires second hand goods or sells on terms, such as retention of title or consignment, or hiring, renting or leasing out valuable goods, machinery, vehicles and equipment, it is advised that the business should search the register for any existing security interests in the property.
See Overall practical results and consequences of the PPSA.
Security agreements under the new systemAn agreement which evidences the granting of a security interest in personal property to secure the payment or performance of an obligation is a security agreement for the purposes of the PPSA. A security agreement will be effected according to its terms. New security agreements will need to create a security interest which attaches to identifiable property and avoids some of the pit falls associated with using pre-PPSA concepts in the PPSA environment. The flexibility of the PPSA allows parties who are drafting security agreements to use the provisions of the PPSA.
See Security agreements under the new system.
Changes to and relationship with other legislationMany of the pre-PPSA laws (or parts of them) that deal with personal property securities have been repealed and replaced by the PPSA. New provisions have been introduced to the Corporations Act 2001 (Cth) to align it with the PPSA. The PPSA also contains provisions dealing with situations where a security interest is governed by both the PPSA and the National Consumer Credit Code.
See Changes to and relationship with other legislation.
Who can search the PPSR?Any individual who wishes to know about security interests in personal property can search the PPSR. One common reason for searching the PPSR is when a buyer wishes to make sure that the goods that they are looking to purchase do not have finance owning against them. Another common reason for searching the PPSR is to search for existing security interests on personal property, which may affect creditors in liquidation or bankruptcy.
Registration of interest in company collateralThe registration for PPSA security interests granted by a company in collateral should be registered by the latest of the following times:
- •six months before the critical time (such as when the winding up or administration of the company begun);
- •twenty business days after the security agreement that gave rise to the security interest came into force, or the critical time, whichever time is earlier (s 588FL); and
- •a later time ordered by the court under s 588FM.
If the secured party registers the interest after the relevant time period and an insolvency-related event occurs (winding up, appointment of an administrator or execution of a deed of company arrangement) the security interest will vest in the company which granted the security interest.
For example — Company A grants Company B a security interest in all its present property. Company B registers the interest 25 days after the security interest was created. Company A (the grantor) becomes insolvent 30 days after the security interest is granted. The security interest would vest in the grantor because it was not registered within the required 20-day period or within the 6-month period prior to the “critical time”.
Application by courtsIn the decisions of Apex Gold Pty Ltd and Cardinia Nominees Pty Ltd [2013] NSWSC 881, the New South Wales Supreme Court extended the time for registration of security interests where they had not been registered within the 20-business day period. It was found in both cases that the delays were the result of a mistake or misunderstanding by their legal advisors.
The significance of timely registration of security interests was considered in Relux Commercial Pty Ltd (in liq) v Doka Formwork Pty Ltd (2014) 104 ACSR 163 and Amerind Pty Ltd (recs and mgrs apptd) (in liq) [2017] VSC 127. These cases indicate that secured parties should ensure security interests are registered within 20 days of creation.
Other dealings on the PPSROnce a registration has been made, users can amend details (including grantors, description of collateral, end time), discharge or renew the registration, reissue the verification statement, transfer a registration to a different secured party group or ask for a new token (which is used to authorise a user to amend or discharge a registration). Some of these actions may require payment of a fee.
CostsThe PPSR operates on a cost recovery basis. Fees are subject to change periodically. For verification of costs of operating the PPSR, please see the Fees section of the PPSR website.
