The Personal Property Securities Act 2009 (Cth)(PPSA) governs the use of personal property as security for the performance of obligations. The PPSA created a register to amalgamate all other registers for differing security interests involving personal property.
It aims to ensure the protection of third parties and deals with the priorities of competing interests. It is often created when a secured party (most commonly the lender) takes an interest in the personal property of a grantor (such as a borrower) as security of a loan or other obligation. If these obligations have not been met, the secured party may take the personal property (known as the collateral).
This is defined under section 12 of the PPSA as an interest in personal property provided for by a transaction that secures payment or performance of an obligation. That is, without regard to the form of the transaction or the identity of the person who has title to the property.
What does a Security Interest Include?
The introduction of the PPSA broadened the concept of a security interest under Australian law. Section 12(3) provides that a security interest can also include :
- (a) the interest of a transferee under a transfer of an account or chattel paper;
- (b) the interest of a consignor who delivers goods to a consignee under a commercial consignment;
- (c) the interest of a lessor or bailor of goods under a PPS lease. This includes leases of personal property for a term exceeding 12 months or 3 months for boats, aircraft, and motor vehicles.
How can I Perfect my Security Interest ?
Perfecting a security interest is crucial as it provides the securing party with certain legal protections under the law. Generally, in terms of enforcement, priority is given to perfected security interests rather than unperfected.
There are three ways that a security interest can be perfected :
- By taking control of the personal property
- By registration onto the Personal Property Securities Register (PPSR) (this is the most common form of registering an interest)
- By taking possession of personal property
If a security interest is perfected, it allows :
- Your security interest to have priority over unperfected interests in the same property
- A priority interest enforceable against third parties
- If the grantor becomes insolvent, your security interest will continue
However, if a security interest is not perfected :
- Other perfected interests will have a priority over the security interest
- The secured party will be treated as an unsecured creditor if the grantor is to become insolvent.
Under the PPSA, the scope of security interests has broadened under Australian law. Protecting your security interest by correctly registering it onto the PPSR is important. You must be particularly cautious as failure to do so may result in severe consequences.