The Personal Property Securities Act 2009 (Cth) (PPSA) is an important piece of federal government legislation that commenced operation on 30 January 2012. Set out below is an explanation of what the PPSA is about, and why lawyers and anyone else involved in buying, selling, merging or taking security over personal property needs to know about it.
- The PPSA provides for the creation and registration of security interests (note there are time constraints for registering them effectively) in personal property and their enforcement against those that have granted them.
- The PPSA deals with personal property (which is very broadly defined) which is essentially any form of property other than land and certain licences. The concept of security interest is fundamental. It means an interest in personal property that is provided for by a transaction that, in substance, secures payment or performance of an obligation. The holder of a security interest is referred to as the secured party. The person who owes payment or performance of an obligation that is secured by a security interest in personal property is called the debtor and the person who has the interest in the personal property to which the security interest is attached is called the grantor (they may also be the debtor but not always so). The case law has held that the same person cannot be both the grantor and the secured party (Macquarie Leasing Pty Ltd v DEQMO Pty Ltd  NSWSC 1466.)
- The personal property the subject of a security interest is called collateral.
- Security interests are effective and enforceable against grantors where those interests attach to the collateral that is the subject of the interest. They are enforceable against third parties where they have been perfected. One way to perfect a security interest is to register it under the Act.
- Unperfected security interests are ineffective against third parties. This occurs because an unperfected security interest held by a secured party vests in the grantor upon the bankruptcy or winding up of the grantor.
- Unperfected security interests rank behind perfected security interests.
- The PPSA is not a code: s 254 of the Act provides that it is to operate concurrently with the laws of the Commonwealth, State and Territory law and the general law.
- The PPSA provides for a priority regime, not a title regime: s 273 of the Act.
Whether a particular transaction creates a security interest in favour of the other party requires us to have regard to the following:
- is there an outstanding existing monetary or non-monetary obligation owed by one party (the putative grantor) to the other (the putative secured party)?
- is there in substance security to support the payment of money or performance of the obligation?
- does the security amount to an interest in personal property? and
- does the interest arise out of a transaction?
If you are a secured party
Focusing for the time being on your position as a potential secured party in circumstances where you sell goods on a retention of title basis or create a lease of goods or a bailment of goods in a manner that satisfies the PPSA (note these latter transactions are deemed to be security interests as opposed to being treated as in substance security agreements) then generally the elements (1) to (4) inclusive set out above will be met and no further steps will be required to fall within the operation of the PPSA. It is sometimes regarded as good practice to add a statement to an agreement that the parties treat the agreement as evidence of a security agreement for the purposes of section 20(2) of the PPSA, but it is not essential to do this.