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 your traditional securities such as mortgages, charges and assignments. The PPSA broadened the concept considerably to include non-traditional interests in personal property.
What is a Security Interest Under the PPSA?
The PPSA defines a security interest in Section 12(1). Here, a security interest is:
- A transaction that provides an interest in personal property and,
- In substance, secures payment or a performance of an obligation regardless of the form of the transaction.
Personal property is any property other than real estate.
The definition captures most of the traditional security transactions, such as 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.
Also, Section 12(3) of the PPSA states that particular interests are security interests whether or not 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 for a term exceeding 12 months (or three months for motor vehicles, boats or aircraft).
A factor is a commercial agent that purchases accounts receivable from businesses at a discounted price for the benefit of future payments the accounts receivable will generate. A consignment occurs where the title holder (the consignor) delivers possession of personal property to the consignee. The consignee sells personal property of that type and attempts to sell the consignors property.
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 3 ways:
- by taking possession of the personal property,
- by taking control of the personal property, and
- by registering it on the Personal Property Securities Register (PPSR).
The most common form is registration on the PPSR.
The concept of a security interest is considerably broader than it once was. It is necessary 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 correctly register your security interests can result in severe consequences, and you need to be aware of these.
If you require any advice on your security interests or have any questions, please do not hesitate to contact LegalVision on 1300 544 755. One of our PPSA experts would be delighted to assist you.