Enforcement of security interests 

General

Chapter 4 of the Personal Property Securities Act 2009 (Cth) contains rights and remedies of enforcement of security interests on the default under a security agreement. Security agreements do not need to include these remedies and may instead rely upon the PPS Act.

Application

The Chapter 4 enforcement provisions complement other rights and remedies availableSection 110, PPS Act . Such additional rights may be contained in statute law, common law or equity.

The National Consumer Credit Code (the Code) continues to apply under the PPS Act.  Where the PPS Act and the Code contain comparable obligations the PPS Regulations provide that compliance with the Code is deemed to be compliance with the PPS ActSection 119, PPS Act and Regulation 4.1, PPS Regulations .

Parties would be able to contract out Section 115, PPS Act of most of the enforcement provisions of the PPS Act where collateral is not used predominantly for personal, domestic or household purposes.

The enforcement provisions do not apply where a receiver or controller has been appointed to deal with property under Part 5.2 of the Corporations Act 2001 (Cth) Section 116, PPS Act .

Seizing collateral on default

On the default of a grantor under a security agreement, the secured party can commence enforcement action.

The first step in enforcement is for the secured party to seize the collateralSection 123, PPS Act . If a secured party has a security interest that is subordinate to another security interest in the collateral, the secured party with the higher priority security interest is entitled to seize the collateral from the subordinate secured partySection 127, PPS Act .

Having seized and obtained possession of the collateral the secured party may either dispose of or retain the collateralSection 128, PPS Act .

Power of sale

The secured party may dispose of the collateralSection 128, PPS Act  by exercising a power of sale. Before the sale the secured party undertaking enforcement must give a notice of the intended disposal to the grantor and other secured parties with a higher priority security interest. The notice must includeSection 130, PPS Act particulars of the collateral, the enforcing secured party and the manner of sale.

The secured party exercising a power of sale has a duty to obtain market valueSection 131, PPS Act for the price of the collateral or otherwise obtain the price that is reasonably obtainable.

The purchaser takes the collateral freeSection 133, PPS Act  of the security interests of the grantor and all subordinate security interests as well as the grantor of the security interest. The proceeds of the sale are distributed among secured parties in order of prioritySection 140, PPS Act with any residual proceeds given to the grantor.

Retaining collateral

As an alternative to disposal of the collateral the secured party could ‘retain’ the collateralSection 134, PPS Act  in satisfaction of the outstanding amount owed under the security agreement. The effect of retaining the collateral would be to have title transfer to the retaining party and all other security interests extinguish.

In order to retain the collateral the enforcing secured party must give noticeSection 135, PPS Act  to the grantor and secured parties with registered security interests. These secured parties would be entitled to object to the proposing retaining of the collateral. The secured party would not be entitled to retain the collateral where an objection was made.

Redeeming and reinstatement

Collateral may be redeemed or a security agreement may be reinstated at any time before a disposal is exercised in relation to the collateral.

The grantor or any other secured party may ‘redeem’ the collateralSection 142, PPS Act  by paying out all amounts outstanding that are secured against the collateral and the enforcement expenses of the enforcing secured party. Upon redeeming the collateral the redeeming party becomes owner of the collateral and entitled to possession.

Any person may reinstate the security agreementSection 143, PPS Act  by payment of the amount in arrears under the security agreement and the enforcement expenses of the enforcing secured party. Once reinstated the relationship between the grantor and secured parties continues as if the default had not occurred. The collateral should be returned to the grantor who should continue to make agreed payments to secured parties.