Coming into effect in early 2012, the Personal Property Securities Act 2009 has been one of the most seminal changes to commercial law in recent history. The Act establishes law about security interest in personal property, that being all forms of property other than real estate. Previously over 70 separate Acts regulated personal property securities in Australia, which caused many separate registration requirements, inconsistencies and cross-border anomalies. This Act has been designed to streamline the legislation and help with
A security interest is an interest in personal property provided for by a transaction that secures payment or the performance of an obligation regardless of the form of the transaction. Examples include a charge, chattel mortgage, conditional sale, hire purchase, pledge, trust receipt, consignment, goods lease, assignment, transfer of title and flawed asset arrangement. In addition to this general definition there are certain transactions that are considered security interests under the PPS Act. These being:
- the interest of a factor in an account
- consignment arrangements
- leases of personal property for a term exceeding 12 months
In order for a security interest to be enforceable against the grantor it must have ‘attached’ to collateral. Attachment is similar to the concept of the creation of legally binding relations.
This occurs if the grantor has rights in the collateral and accepts money or does some other act by which the security interest arises.
In a similar vein, perfection is a form of protection for a secured party that is stronger than the mere attachment of their security interest. According to the Personal Property Insolvency Registry website, in order for a security interest to be perfected 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. If a security interest is perfected, it will affect the priority it has compared to other security interests, helping it survive in the event of the insolvency or bankruptcy of the grantor.
On the other hand, an unperfected security interest will be void if certain insolvency events occur, such as wound up, made bankrupt or has an administrator appointed. Further to this, it may be extinguished as a result of the grantor’s dealings with 3rd parties.
Leading Brisbane insolvency expert Jonathan Paul McLeod recommends that you review your business documents to ensure that your securities are perfected. For more information on the PPSA please contact us at McLeod and Partners and speak to one of our staff, including trained legal professional and Partner Bill Karageozis.
Source: Australian Financial Security Authority
Source: Personal Property Securities Register