1. An overview of the Personal Property Securities Act 2009 (Cth)
Jason Harris BA LLB (UWS), LLM (ANU), FCIS
Senior Lecturer, UTS Faculty of Law

2. Outline What is the PPSA? Key changes to existing law
Exclusions from the PPSA
Transitional rules
Types of security interests
Attachment and perfection
Priority rules
Taking free rules
Overview of enforcement action

3. Personal Property Securities Act
PPSA 2009 (Cth)-operational from 30 January 2012
Subject to 2 year transitional period, but is still operational now and applies fully to new security agreements
A new system, with concepts previously unknown in Australian law
Will affect most types of commercial transactions
Based on PPS laws in NZ, Canada (originated in US (UCC Article 9))
Replaces more than 40 existing state registration systems for security interests over personal property with 1 Cth register

4. Key changes to existing law
Fixed and floating charge distinction mostly irrelevant under PPSA
Distinction between legal and equitable interests (as security) is irrelevant under PPSA
May be excluded unless consensual
Easier to trace into proceeds under PPSA (no need for fiduciary relationship)
Form of the transaction is irrelevant (eg mortgage, charge)
PPSA takes a functional, in substance approach (compare with current form-based approach)
Certain transactions that were not previously security interests (leases, retention of title) are covered by PPSA (i.e. need to register to maintain priority)
Priority no longer based on title-PPSA treats title of lessor or supplier with ROT as a security interest

5. Fixed and floating charges
Pt 9.5 provides that (s339):
floating charges shall be read as charges over circulating assets
fixed charges shall be read as charges over non-circulating assets
However this only applies to security interests arising after commencement (s318)
Circulating assets are defined in s340(5)
Note exceptions in s340(2)-(4A)
Definition of control in ss341, 341A

6. Key points for lawyers
Don’t rely on the transitional provisions to protect your client
PPSA will affect most types of commercial transactions-don’t assume that the arrangement must involve traditional security
Arrangements that are not commonly thought of as being security interests are now included
Leasing, bailment and consignment arrangements
Supply of goods under retention of title
Some trust arrangements
Failing to understand obligations can result in a loss of priority
Operation of priority rules, vesting rules and ‘taking free’ rules
Requirements for perfecting and enforcing a security interest must be carefully adhered to
Focus on requirements for valid security agreements
PPSA offers additional enforcement rights to secured parties
Variation of corporate insolvency rules in Corporations Act

7. Operation of the PPSA Is the arrangement excluded? (s8)
Does it involve an in substance security interest? (s12(1))
If not, does it involve a deemed security interest? (s12(3))
If so, has the secured party ‘perfected’ their security interest? (ss19-22)
Attachment of the security interest
Enforceability against third parties
Perfection through possession, control or registration
If so are there any other competing security interests over the same collateral?
Apply the priority rules (eg s55)
Check for special types-eg PMSI (ss14,62,63), control over accounts (ss57, 75)
Apply the enforcement rules (Ch4)
Are they excluded (eg receiverships)? (ss109, 115)
Check for taking free (extinguishment) rules (Pt 2.5)

8. Exclusions from the PPS (s8)
Various exclusions including:
Statutory security interests (eg arising under tax laws)
Security interests that arise by operation of law (eg common law and equitable liens)
Set-off and netting arrangements
Interests in land and fixtures
Special purpose trusts (Quistclose trusts)
Statutory exclusions under state and federal law (eg certain mining and fisheries licenses)
*Note: s8(2) may apply some PPSA provisions*

9. Key concepts Debtor (who owes money or obligation)
Grantor (party who gives security interest to the secured party-but may be someone else, eg secured guarantor)
Secured party (creditor who obtains a security interest over collateral)
Collateral (personal property that is subject to a security interest)
Can give rise to proceeds-security interest will automatically attach to proceeds (s32)
Financing statement (PPSA registration form)
Security agreement (agreement or act creating a security interest between a debtor and secured party or a writing evidencing such an agreement)
Takes effect according to its terms (s18(1))

10. Transitional provisions
Operation of the PPSA is varied for transitional security interests (s308)
The PPSA deems (for transitional security interests)
enforcement against third parties (s311)
attachment at RCT (s321)
time of perfection at RCT (s322)
Note: limitation on deemed perfection (s322(2))
Note: exception to deemed perfection for transitional sec int if registrable but not registered (eg charge not properly registered) (s322(3), PPS Reg 9.2)
Ch 4 (enforcement) does not apply to transitional interests (s314)
Changes to fixed/floating charge terminology in Pt 9.5 only apply to use of those terms in security agreements at or after the RCT (s318)
See also Corps Act ss51, 51A
(PPSA sec int does not include a transitional sec int)
Priority rules: ss320, 322A-324
Note problems with ASIC migrated data (ABN/ACN): s337

11. Types of security interests
Title and form of transaction irrelevant
General definition-s12(1)
Specific examples-s12(2)-note: only if in substance secured payment or performance of an obligation
Deemed security interests-s12(3)
Transfer of account/chattel paper; commercial consignment
Includes PPS lease (defined in s13):
Lease or bailment of goods for more than 1 year or indefinite term
Serial numbered goods-term of 90 days or more or indefinite term
Lessor or bailor must be in the business of leasing or bailing goods-s13(2)
Only bailments for reward (not gratuitous)-s12(3)

12. Section 12 definition
(1) A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property).

13. ‘The PPSA does not rely on either the common law notion of title or the equitable concepts of beneficial interest or equity of redemption to resolve priority disputes.  Rather, for those interests that come within the scope of the Act, the PPSA provides a compendium of rules establishing priority rankings both as between different security interests as well as between security interests and other interests in the collateral, with no regard to the question of who actually has title to the collateral.’
BOM v Innovation Credit [2010] 3 SCR 3 at [19]

14. Case example Waller v NZ Bloodstock Limited [2006] 3 NZLR 629
Secured creditor had charge over debtor co property
2 years later owner of horse (lessor-NZ Bloodstock) leased horse to debtor
Secured creditor then perfects security interest upon introduction of PPS
Lessor did not register its security interest in horse under PPS- (assuming as ‘owner’ there was no need)
Lessor terminated lease and seized horse-secured creditor appointed receiver and sought to recover horse
Secured creditor had priority over unperfected interest of lessor-even though lessor owned the horse
Failing to register a security interest can result in losing rights over the collateral

15. Waller v NZ Bloodstock
[75] “The result follows Parliament’s decision that the kind of leasehold interest retained by NZ Bloodstock [lessor] should, as a matter of policy, be treated as a mere security interest which requires registration to be perfected. Since that did not occur, [secured creditor’s] competing security interest which was duly registered and so perfected took priority. The major lessons of the case are twofold: the statutory altering of the proprietary rights of a lessor; and the crucial importance of registration. These are policy choices which have been made and significantly alter what would otherwise have been the position.”

16. Steps to obtain ‘perfection’ of a sec int
Attachment of the security interest (s19)
Enforceability of the security interest against third parties (s20)
Perfection by registration, possession or control (s21)

17. Attachment of security interest (s19)
Important for rights:
Between debtor and secured creditor (s19)
Between secured creditor and third party (s20)
Attachment under s19 only allows rights against grantor-rights against 3rd parties requires more
No enforcement unless security interest attaches to collateral (s19(2))
Grantor must have ‘rights in the collateral’
Value must be given
‘What is considered as rights in the collateral encompasses a range of interests beyond legal and equitable title…Without rights in the collateral then the nemo dat rule continues to apply and no security interest can be granted’
iTrade Finance Inc v BOM (2011) 77 CBR (5th) 231 at [44]
Note: use of floating charge terminology does not create deferred attachment (s19(4))
Attachment under s19 is not the same as crystallisation of a floating charge
Security interest over goods bailed or leased under PPS lease attaches when grantor obtains possession of goods (s19(5))

18. Enforcement against 3rd parties
Secured creditor may enforce security interest against 3rd party if:
Security interest attached to collateral; and
Secured creditor has possession of collateral, perfected interest by control (only limited collateral can do this) or has a security agreement that covers the collateral (s20(1)(b)(iii)-note requirements for security agreements (s20(2))
Effectively, this means most security devices will need a security agreement

19. Security agreements Note s18, note definition in s10
Requirements in s20(2):
Evidenced in writing
Signed by grantor or adopted or accepted with intention to adopt or accept the writing
Writing gives description of collateral (or all present and after acquired)
Collateral description must be more than commercial or consumer property
Writing may be made up of multiple joined documents

20. Perfection rules
Secured creditor must ‘perfect’ their security interest in order to obtain priority
Must maintain ‘continuous perfection’
Note application of temporary perfection rules
Perfection can occur by (s21(2)):
Registration;
Possession of the collateral (but not by seizing on default-see s24 for def of possession); or
Control of the collateral (limited categories of collateral only)
In addition, attachment must occur and secured party must have rights against 3rd parties (s21(1))
Attachment and registration can occur in any order, but priority does not arise until both occur-i.e. until ‘perfection’
Multiple transactions can be perfected by a single registration (called a financing statement)
Note: special perfection rules for proceeds of collateral (s33)
Other special rules for transferred and returned collateral

21. Default priority rules (s55)
Knowledge of prior interest is largely irrelevant
Perfected security interest beats unperfected
Unperfected interests are determined by order of attachment
Priority between security interests determined by earliest ‘priority time’ (s55(5)):
registration;
perfection by possession or control; or
temporary perfection (eg by transfer of collateral)
Priority time must remain ‘continuously perfected’ until enforcement (see s56)
Useful to register a financing statement to ensure continuous perfection even if possession or control also applies

22. Special priority rules
Perfection by control beats all other forms of perfection (note only some forms of collateral may have security interests perfected by control) (s57)
Priority over proceeds and advances will be same as for original security agreement (ss33,58)
Payment of debt in ordinary course of business (s69)
Negotiable interests, chattel paper and negotiable documents of title (ss70-72, 79-81)
Transferred collateral (s34)
Bank security interests in ADI accounts held by them beat all other security interests (s75)
Accessions (Pt 3.3)
Commingled goods (Pt 3.4)
Voluntary subordination possible (s61)
Transitional security interests (s320)

23. Purchase money security interest (PMSI)
PMSI enjoy special priority, so it is important to identify them
Section 14
a security interest taken in collateral, to the extent that it secures all or part of its purchase price;
a security interest taken in collateral by a person who gives value for the purpose of enabling the grantor to acquire rights in the collateral, to the extent that the value is applied to acquire those rights;
the interest of a lessor or bailor of goods under a PPS lease;
the interest of a consignor who delivers goods to a consignee under a commercial consignment.

24. Priority of PMSI
Perfected PMSI will generally take priority over other security interests (except those perfected by control or over accounts for new value-ss57,64,75)
Registration of financing statement must state that security interest is a PMSI
PMSI over goods held as inventory (s62(2)):
Perfection by registration must be done before grantor takes possession of goods
PMSI over goods not held as inventory (s62(3)):
Within 15 business days after the grantor takes possession of goods
Incorrectly marking as a PMSI will invalidate the registration (s165)

25. PPSA v non-PPSA interests
Determined by s73:
Special priority for general liens arising in relation to the provision of goods or services (s73(1))
Determined by a statute (s73(2))
Determined by ministerial declaration (s73(3))
Canadian cases have held that where there is no statutory rule the general law first in time rule applies

26. Taking free rules Buyers or lessees
For value, take the personal property free of an unperfected security interest in the property (s43)
Special rules for serial-numbered goods (ss44,45)
Ordinary course of business (except buyer/lessor of serial no property held as inventory, or actual knowledge of breach of agreement) (s46)
For new value (s10) $5k or less, where intention to use property for personal, domestic or household purpose (s47)-exceptions in s47(2)

27. Overview of enforcement action
PPSA Part 4-detailed rules and remedies
Does not apply to deemed security interests and certain arrangements involvement investment instruments (s109)
Some provisions excluded for household property (s109(5))
s115-limited contracting out possible
Provisions do not take away other legal rights or obligations parties may have (s110)
Does not apply if grantor is a corporation and secured creditor appoints a receiver (s116)
Must act honestly and in commercially reasonable manner (s111)
Rights are cumulative (s114)
Main power is seizure (s123) and sale (s128), although foreclosure is also possible (s134)
Obligation to give notice of action
Any secured party can take enforcement action-higher priority creditor may serve notice to take control (s137)

28. Finding information on the PPSA
Websites
(PPS Register)
(Cth A-G Dept, PPS page)
Looseleaf practitioner services
Australian Personal Property Securities Reporter (CCH) (From April 2012)
Personal Property Securities in Australia (LexisNexis)
Personal Property Securities (Thomsonreuters)
Books
Harris and Mirzai, The Annotated Personal Property Securities Act (CCH)
Cseti, Understanding the PPSA (CCH)
Meehan, The PPS Guide (self published)
Journals
Journal of Banking and Finance Law and Practice (Thomsonreuters)
Australian Banking and Finance Law Newsletter (LexisNexis)