Purchaser protections

General

Ordinarily, a security interest in an item of personal property will survive a sale of that property. That is, the buyer purchases the property subject to the security interest.

The Personal Property Securities Act 2009(Cth)[1] is intended to protect buyers of personal property[2] where they are not aware of an existing security interest. This effectively extinguishes the security interest at the time of the transaction, and the buyer has good title to the property without any encumbrances. It also reflects existing protections for buyers under the Trade Practices Act 1974 (Cth) and the State and Territory sale of goods legislation.

This general rule[3] does not apply where the buyer’s interest is also a security interest, except where the property is an investment instrument or an intermediated security, and in other instances explained below.

Specific categories of personal property

The PPS Act contains rules for when certain categories of personal property may be bought or leased free of a security interest.

Unperfected security interests

Where there is an unperfected security interest[4], a buyer who provides new value[5] can acquire the collateral free of the security interest. The rule gives secured parties an incentive to perfect their security interests. However, buyers must not be a party to the transaction that created the security interest in the first place. This exception ensures that buyers cannot protect themselves by searching the Personal Property Securities Register (the PPS Register) before making the purchase.

Motor vehicles and other serial-numbered property

The types of personal property that may or must be described by serial number[6] are listed in the Personal Property Securities Regulations 2010 (the PPS Regulations). These can include motor vehicles, watercraft, aircraft or registered trademarks, patents, designs and plant breeder’s rights.

Buyers can acquire serial-numbered personal property free of security interests if they search the PPS Register and do not find any security interest registered against that property. The search must be done immediately before the transaction, or up to the previous day if the property is a motor vehicle. This means that buyers are not responsible for faulty serial number registrations.

Exceptions to this include where:

  • the buyer holds the property as inventory after the sale, either for themselves or on someone else’s behalf
  • the buyer is a party to the transaction that created the security interest, or
  • the secured party is in possession of the motor vehicle immediately before the transaction, and the motor vehicle is bought at a sale held by or on behalf of an execution creditor. Where the seller is a licensed motor vehicle dealer[7], the buyer automatically acquires the property free of any security interest. This means that buyers do not need to search the PPS Register when buying a motor vehicle from a licensed dealer.

Collateral sold in the ordinary course of business

Where a buyer acquires property in the ordinary course of the seller’s business[8] they can acquire the property free of any security interest granted by the seller. This means that the liability against unknown security interests lies with the seller when they are in the business of dealing with those goods.

Exceptions to this include where:

  • the buyer holds the property as inventory after the sale, either for themselves or on someone else’s behalf, or
  • the buyer is a party to the transaction that created the security interest.

Personal, domestic or household property

A buyer who acquires property for new value predominantly for personal, domestic or household purposes[9] can take the property free of any security interest. The property must be purchased for a personal, domestic or household purpose, and the market value of the total new value given for the property must not exceed $5,000. This allows consumers to purchase low value goods without the need to search the PPS Register.

Exceptions to this include where:

  • the property may or must be described by a serial number, or
  • if the buyer knows of other security interests already attached to the property.

Currency

A holder of currency can acquire it free of any security interest[10] if they do not have knowledge of any security interest attached to the currency. This recognises the importance of negotiability of currency in the ordinary course of trading.

Investment instruments or intermediated securities

A buyer who acquires an investment instrument or an intermediated security[11] takes the property free of any security interest. The purchase must be made in the ordinary course of trading on a prescribed financial market[12]. This protects the integrity of market transactions such as acquisitions on the Australian Stock Exchange.

Transactions must be for value and consensual between the buyer and seller. The buyer must not have any knowledge of other security interests attached to the investment instrument or intermediated security.

Temporarily perfected security interests

Security interests can be temporarily perfected in some circumstances, even if they are not registered by the secured party. These include where:

Buyers who acquire personal property with a temporarily perfected security interest[21] can acquire the property free of the security interest. The buyer must provide new value and must not have knowledge of the security interest attached to the collateral. This protects innocent buyers, as temporarily perfected security interests are not able to be found by searching the PPS Register.

Notes

  1. See http://www.comlaw.gov.au/Current/C2009A00130
  2. See fact sheet: Personal property securities - key concepts 
  3. See Part 2.5 of the PPS Act 2009
  4. See section 43 of the PPS Act 2009
  5. New value means value that is not provided to reduce or discharge an earlier debt or liability. See section 10 of the PPS Act 2009
  6. See sections 44 and 45 of the PPS Act 2009
  7. See regulation 2.2 of the PPS Regulations
  8. See section 46 of the PPS Act 2009
  9. See section 46 of the PPS Act 2009
  10. See section 48 of the PPS Act 2009
  11. See sections 49 to 51 of the PPS Act 2009
  12. This is within the meaning of the Corporations Act 2001 (Cth)
  13. See section 22(2) of the PPS Act 2009
  14. See section 33(2) of the PPS Act 2009
  15. See section 34(1) of the PPS Act 2009
  16. See section 35(1) of the PPS Act 2009
  17. See section 36(1) of the PPS Act 2009
  18. See section 38(3) of the PPS Act 2009
  19. See section 39(1) of the PPS Act 2009
  20. See section 40(2) of the PPS Act 2009
  21. See section 52 of the PPS Act 2009

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