Making Sense of the Personal Property Securities Register
The operation of the Personal Property Securities Register (“PPSR”) can be a confusing enough concept for lawyers, let alone the general public. However, having a basic knowledge of the priority rules of scheme can ensure that you don’t miss out when it comes to enforcing your security interest.
What is the PPSR?
The PPSR was created under the Personal Property Securities Act 2009 (Cth) (“the Act”). The intention of the Act and the PPSR was to create a system of registration for security interests in personal property within Australia.
However unlike other registers, such as that maintained by the Lands Titles Office, the PPSR is not a title or document register. Instead, the PPSR acts as a database of currently secured personal property in Australia.
The PPSR provides notice as to whether there is a security interest against property. The main functions of the PPSR are for an individual or an entity to:
- register their interest or right over another’s personal property to secure a debt or obligation that is owing by the other party; and/or
- search the PPSR to see whether there is a pre-existing interest over certain personal property.
What does the PPSR cover?
The PPSR only applies to “personal property”.
Under the Act, this includes all property (whether tangible or intangible) other than real property (i.e. land). As such, a security interest may be registered on the PPSR if it relates to things such as:
- cars;
- plants;
- aircraft;
- intellectual property;
- book debts; and
- paintings
What are the benefits of the PPSR?
As the PPSR is not a register of title, it can be difficult for the average person to see the benefit in registering their security interests.
The importance of registration lies in the resolution of disputes between competing security interests.
Prior to the introduction of the Act and the PPSR, the law was quite complex in relation to resolving priority disputes between competing interests in property. A number of factors would need to be taken into account, such as the nature or location of the debtor, the legal form of the transaction or whether the security holder had knowledge of other security interests.
The introduction of the PPSR simplified this process to a degree, creating a hierarchy of priority. As such, it is important for individuals to register their security interests correctly in order to maximise the level of priority they obtain under the Act.
Who takes priority?
The priority of competing security interests under the Act can be summarised as follows:
- a perfected security interest (“perfected” meaning that either the security interest is registered on the PPSR, or the collateral is in the control of the secured party) will have priority over an unperfected security interest;
- if there are two perfected security interests, the security interest that was perfected first will take priority; and
- if there are two unperfected security interests, the security interest which ‘attached’ to the personal property first will take priority. Attachment occurs when the grantor of the security interest has rights in the personal property and either value is given for the security interest or the grantor does an act by which the security interest arises (such as entering into a security agreement).
The key takeaway of this of course being that it is vitally important for individuals to ensure that their security interest is registered on the PPSR in order to obtain priority over other interests.
However, while the summary above outlines the general rules relating to priority, there are exceptions.
Purchase money security interests
The most notable exception to the general rules of priority under the Act relates to purchase money security interests (“PMSI”).
Prior to the Act, the most common form of security for goods sold on credit was a Romalpa or Retention of Title clause (“ROT”) retaining title in the goods until payment was made. This was not considered to be a security as title simply remained with the vendor. Under the Act, however, a ROT clause is a security interest requiring registration on the PPSR.
A PMSI is a particular type of security interest in personal property. A PMSI will secure the unpaid purchase price for goods if a ROT clause exists, but there are other types of PMSI. A PMSI will secure the assistance provided by one party to another party to allow the other party to purchase or acquire rights in certain personal property. For example, where a bank provides a loan to a company to enable the company to purchase an asset, the bank will be eligible to register a PMSI over that asset.
A PMSI is given what is called “super priority” on the PPSR. That is, it will take priority over all other security interests in the same personal property (whether perfected or unperfected) regardless of when the PMSI is perfected.
When is a PMSI likely to arise?
A PMSI is likely to arise where:
- money is lent to the grantor in order to enable the grantor to purchase personal property (as outlined in the bank loan example above);
- the secured party has given the grantor personal property, but all or part of the purchase price remains outstanding and a ROT clause or other security exists;
- the secured interest is subject to a PPS lease transaction (i.e. a lease or bailment of goods for a term exceeding one year or for an indefinite period); or
- the secured interest is subject to a consignment transaction.
Key takeaways
It is important for individuals with security interests in personal property to not only ensure that their interest is registered on the PPSR, but also registered correctly in order to secure the highest level of priority possible. It is also necessary to ensure that an appropriate form of security exists as the Act does not create security interests, it only provides for their registration and priorities.
For more information, please contact:
Sandy Donaldson
Director
p. +61 8 8124 1954
e. Email me
This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this report, or what it means for you, your business or your clients' businesses, please feel free to contact us.