Personal property securities - Key concepts 

General

The Personal Property Securities Act 2009 (Cth) is a law about security interests in personal property.

Personal property is all forms of property other than real estateSection 10, PPS Act .

A security interestSection 12, PPS Act is an interest in personal property that in substance secures payment of a debt or other obligation regardless of the form of the transaction. 

This definition covers transactions currently considered a form of security such as mortgages over motor vehicles or charges in company property. It also covers forms of transactions not currently considered as a form of security as a consequence of the form of the transaction. Examples of such transactions include:

• Retention of title clauses in sale agreements whereby a purchaser has possession of personal property, but does not acquire title from the vendor until the full purchase price is paid.
• Financing leases where personal property is leased for payments that cover the cost of the personal property and the lessee has the ability to acquire title to the personal property.

In addition to this general definition, certain transactions are deemed to be security interests under the PPS Act. The deemed security interests are:

• the interest of a factorA 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 in an account
• consignment arrangementsA consignment occurs where the title holder (the consignor) delivers possession of personal property to the consignee. The consignee is in the business of selling personal property of that type and attempts to sell the consignors property. See sections 12 and 10, PPS Act, and
• leases of personal property for a term exceeding 12 monthsSection 12, PPS Act (or three months for motor vehicles, boats or aircraft).

Terminology

It is important to understand the new terminology that accompanies the PPS Act and the PPS Register.

Attachment and creation of enforceable rights

A security interest must have ‘attached’ to collateral in order for the security interest to be enforceable against the grantor. Attachment is similar to the concept of the creation of legally binding relations.

A security interest attachesSection 19(2), PPS Act. Also see the information sheet ‘Personal property securities law – Key concepts’. to collateral if the grantor has rights in the collateral and accepts money or does some other act by which the security interest arises.

A security agreementSection 20, PPS Act must generally be in writing and signed by the grantor to be enforceable against a person other than the grantor (such as another secured party).

Perfection

Perfection is a technical concept particular to the PPS Act. Perfection is a form of protection for a secured party that is stronger than the mere attachment of their security interest.

In order for a security interest to be perfectedSection 21, PPS Act it must have attached, be enforceable against third parties and is either registered on the PPS Register or the collateral is in the possession or control of the secured party.

The perfection of a security interest will affect the prioritySee information sheet ‘The PPS Register and priorities’ it has relative to other security interests in the collateral and its status in the event of the insolvency or bankruptcySee information sheet Receivership, administration and liquidation of the grantor.