What is a Security Interest for the Purposes of the Personal Property Securities Act?

In Short

• The Personal Property Securities Act (PPSA) broadens the definition of a security interest to include traditional and non-traditional interests in personal property.

• Common examples encompass retention of title clauses, hire purchase agreements, conditional sale agreements and certain leases.

• To protect your interests, register them on the Personal Property Securities Register (PPSR), as unregistered interests may be subordinated in cases of insolvency.​

Tips for Businesses

Regularly audit your agreements to identify potential security interests under the PPSA. Ensure timely registration on the PPSR to maintain priority over other claims. Seek legal advice to navigate complex arrangements and safeguard your assets effectively.

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Table of Contents

• What is a Security Interest Under the PPSA?
• How Can I Perfect My Security Interest?
• Implications for Businesses and Lenders
• Navigating Compliance and Legal Requirements
• Key Takeaways
• Frequently Asked Questions

The Personal Property Securities Act 2009 (Cth) (PPSA) completely changed the concept of a security interest under Australian law. Before the PPSA, the term “security interest” was limited to traditional securities, including mortgages, charges and assignments. The PPSA significantly broadened the concept to encompass non-traditional interests in personal property. This article outlines what the term “security interest” covers for the purposes of the PPSA. 

What is a Security Interest Under the PPSA?

The PPSA defines a security interest in Section 12(1). Here, a security interest is:

1. a transaction that provides an interest in personal property; and
2. secures payment or the performance of an obligation. 

The definition encompasses most traditional security transactions, including legal and equitable mortgages, fixed and floating charges and assignments. However, it also extends to:

• retention of title clauses (Romalpa Clause); 
• hire purchase agreements; 
• conditional sale agreements; 
• leases (whether or not PPS leases); and
• flawed asset arrangements.

Additionally, Section 12(3) of the PPSA stipulates that particular interests are considered security interests, regardless of whether the relevant transaction secures payment or performance of an obligation. These include:

• the interest of a factor in an account; 
• consignment arrangements; and
• leases of personal property.

A factor is a commercial agent that purchases accounts receivable from businesses at a discounted price, benefiting from the future payments the accounts receivable will generate. 

How Can I Perfect My Security Interest?

Perfection creates a priority interest enforceable against third parties, including the liquidator or administrator of the grantor of the security interest. If a security interest is not perfected,

• other perfected security interests in the personal property will take priority over it; and
• the secured party will be treated as an unsecured creditor on the insolvency of the grantor.

A security interest can be perfected in three ways, by:

1. taking possession of the personal property;  
2. taking control of the personal property; or
3. registering it on the Personal Property Securities Register (PPSR).

The most common form is registration on the PPSR.

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Implications for Businesses and Lenders

The broad definition of security interests under the PPSA has significant implications for businesses and lenders. For businesses, understanding and identifying security interests is crucial for managing risk and protecting assets. This is especially important for those involved in complex transactions, such as hire purchase agreements, which are now captured under the PPSA. Businesses must ensure they comply with the PPSA’s requirements to avoid unintentional loss of security or priority over their assets. 

Lenders, on the other hand, must be diligent in perfecting their security interests to maintain priority in the event of the debtor’s insolvency. This involves not only registering interests on the PPSR but also staying informed about changes and updates to the register.

Navigating Compliance and Legal Requirements

Navigating the compliance and legal requirements of the PPSA can be complex, particularly given the broad range of transactions that may constitute a security interest. It is essential for businesses to have robust internal processes for identifying, documenting and registering security interests. This includes regularly auditing existing agreements and transactions to ensure they meet PPSA standards. 

Additionally, seeking legal advice can be invaluable in this process. Legal experts can provide guidance on the nuances of the PPSA, assist with the registration process, and help resolve any disputes that may arise. By proactively managing compliance, businesses can safeguard their interests and avoid the severe consequences of unperfected security interests, such as losing priority or becoming unsecured creditors.

Key Takeaways

The concept of a security interest is considerably broader than it once was. It is necessary that you understand when a security interest is created and, if necessary, how you can protect your security interests by registering them on the Personal Property Securities Register. Failing to properly register your security interests can result in severe consequences. 

If you are registering personal property, our experienced property and leasing lawyers can assist you as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today at 1300 544 755 or visit our membership page. 

Frequently Asked Questions