The Personal Property Securities Act (2009) Cth (PPSA) introduced a new way for secured parties to protect their security interests in personal property. This generally involves secured parties registering their security interests on the Personal Property Securities Register (PPSR) in order to ensure they are perfected. However, you do not always have to register your security interests on the PPSR for them to be perfected: they may also be perfected either by possession or by control. The rules regarding priority can be complex and depend on the type of security interest you have and how it was perfected.
Who takes priority – the general rules
The general rules regarding priority of competing security interests in the same personal property are as follows:
- a perfected security interest will have priority over an unperfected security interest;
- if there are two perfected security interests, the security interest that was perfected first will take priority; and
- if there are two unperfected security interests, the security interest which ‘attached’ to the personal property first will take priority. Attachment occurs when the grantor of the security interest has rights in the personal property and either value is given for the security interest or the grantor does an act by which the security interest arises (such as entering into a security agreement).
Exceptions to the general rules – perfection by control
Perfection by control is an exception to the above general rules. The PPSA offers perfection by control in relation to certain financial assets (such as intermediated securities, bank accounts and investment securities) and satellites and other space objects. For more details on how to perfect an interest by control, please see our article on How to Perfect a Security Interest by Control.
Any security interest perfected by control will have “super priority” over any other form of perfected security interest, including purchase money security interests, which we discuss below. If two security interests are perfected by control, the security interest that was perfected first will take priority.
Exceptions to the general rules – purchase money security interests
Another exception to the above general rules is in relation to purchase money security interests (PMSIs). A PMSI is a particular type of security interest in personal property that secures the assistance provided by a secured party to a grantor to enable the grantor to purchase or acquire rights in the personal property. For example, the provision of a loan by a bank to a company to enable the company to purchase an asset will entitle the bank to a PMSI over that asset.
A PMSI has “super priority”. It will take priority over all other perfected and unperfected security interests in the same personal property (other than security interests perfected by control) regardless of when it was perfected.
The rules regarding priority of security interests can be quite complex. As a secured party, it is important to understand them correctly, so that you are aware of whether anyone can take priority over your security interests – either now or in the future. You should also ensure there are detailed covenants in your security agreements preventing the grantor from granting future security interests that would take priority over yours. If you require any assistance in understanding the provisions of the PPSA and how it may affect your business, please do not hesitate to contact LegalVision today. One of our PPSA experts would be delighted to assist you!