Personal Property Securities Act – an overview

This article contains what is necessarily a tour of selected points of interest in relation to the new Personal Property Securities Act 2009 (PPSA).

 Introduction

The PPSA will govern the enforceability of, and priorities between, most kinds of security interests in personal property.

Personal property is effectively all property other than interests in land, and includes goods, plant and equipment, shares, intellectual property such as trademarks and copyright, negotiable instruments, debts, as well as many other kinds of property.

Some sundry security interests in personal property are not covered by the PPSA.  One example is a lien which arises by operation of the general law.  This is the kind of lien that your mechanic has over your car when he has repaired it, and it allows him to withhold possession of the car from you until his account has been paid.  This kind of security interest is not covered by the PPSA.

The PPSA defines a “security interest” to mean an interest in relation to personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property).  As the PPSA makes clear, this means that a seller of goods under a retention of title arrangement (whereby title does not pass to the buyer until the goods are fully paid for – sometimes known as a <em>Romalpa </em>clause) is treated for the purposes of the PPSA as merely having a security interest.  This means that such sellers will, in the event of default or insolvency of the buyer, have to compete for priority under the PPSA regime with other security holders (such as financiers who have a charge).  This is a novel position, as sellers under retention of title arrangements have traditionally had rights as legal owners that meant that they did not have to compete with mere security holders in order to retake possession of such goods.

Also defined to be included as security interests are the interest of a consignor of goods under a commercial consignment and the interest of a lessor of goods under what is known a “PPS lease” (generally, a lease of goods capable of lasting more than 1 year, although this time frame is reduced to 90 days in respect of certain specified goods).  Consignors and lessors in these situations are deemed to have security interests, even where the transaction <em>does not</em> in substance secure payment or performance of an obligation.  Just as with sellers under retention of title arrangements, such consignors and lessors had traditionally, as legal owners of the goods, not had to compete for priority with mere security holders, but that has all now changed (with potentially dire results for those who ignore the changes, as we shall see further on in this information brief).

Importance of registration and of searching register

The PPSA determines (amongst other things):

  • when a security interest is enforceable against the grantor (ie: the debtor);
  • when a security interest is enforceable against third parties;
  • in what circumstances a third party is able to purchase “collateral” (ie: personal property which is subject to a security interest) free from the security interest;
  • the order of priorities amongst secured parties who each have security interests in the same collateral.

Many of the rules governing the latter 3 issues listed above rely to a greater or lesser extent on the concept of “perfection” of the security interest.

In relation to the order of priorities amongst secured parties having security interests in the same collateral, the basic rules (which are subject to some important exceptions) are that:

  • A perfected security interest has priority over an unperfected security interest;
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