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.
The Chapter 4 enforcement provisions complement other rights and remedies available. 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 Act.
Parties would be able to contract out 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).
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 collateral. 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 party .
Having seized and obtained possession of the collateral the secured party may either dispose of or retain the collateral.
Power of sale
The secured party may dispose of the collateral 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 include 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 value for the price of the collateral or otherwise obtain the price that is reasonably obtainable.
The purchaser takes the collateral free 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 priority with any residual proceeds given to the grantor.
As an alternative to disposal of the collateral the secured party could ‘retain’ the collateral 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 notice 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 collateral 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 agreement 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.
- Section 110, PPS Act
- Section 119, PPS Act and Regulation 4.1, PPS Regulations
- Section 115, PPS Act
- Section 116, PPS Act
- Section 123, PPS Act
- Section 127, PPS Act
- Section 128, PPS Act
- Section 128, PPS Act
- Section 130, PPS Act
- Section 131, PPS Act
- Section 133, PPS Act
- Section 140, PPS Act
- Section 134, PPS Act
- Section 135, PPS Act
- Section 142, PPS Act
- Section 143, PPS Act
Please note: This information sheet provides general information about PPS reform and does not constitute legal advice. You should seek legal or other professional advice to consider the application of the PPS Act to your individual circumstances.