PPSA and You
A Short Guide to the Personal Property Securities Act 2009 for the Perplexed by Richard Winter & Sagi Peari
If you lend money to someone, what are some of the ways to make sure you get your money back? You obviously need to check if the borrower has good credit, that they have the means to repay the debt or, you might want to take security (also known as ‘collateral’) from them so that if they don’t repay, you can sell the collateral and recover the debt. Prior to 2012, the laws regarding taking of and enforcing security against personal property (that is, all property excluding real estate property, know has “real” property) were a jumble with dozens of separate state and federal based laws in place regulating the taking of security over different types of collateral. There were also different registers if the security provider (the “Grantor”) was a company, or whether the type of property was something like a car, and even then it varied from state to state. In 2012, the Personal Property Securities Act 2009 (Cth) (”PPSA”) came into effect and replaced the myriad of state, territory and federal laws and registers with one national system and register – the Personal Property Securities Register (“PPSR”).
mortgage, charge or pledge, to name a few examples. The traditional priority of form over substance approach was seen to be problematic as it meant many transactions that would in substance act as security would not be recognised. The guiding principle in the PPSA is that it applies to every transaction that “in substance” creates a security interest. Further, in treating varying types of security interest on an equal basis (that is, if they are in substance security then they are security interests) the PPSA was able to set out rules that apply to all security interests, ranging from the ways in which that interest is perfected (registration typically), how different security interests are ranked/compete with one another, treatment of third party buyers and the remedies available following default. Now at last there was a single unifying law and register covering all personal property security interests, and covering all variety of Grantors including companies, partnerships, trusts and individuals.
The Register: A One Stop Shop
Apart from collapsing multiple registers and laws into one, the PPSA also introduced some new and innovative legal concepts to assist in capturing “what is a security interest”.
The strongest position that a funder taking security (that is a “Secured Party”) can have is if its security interest is perfected. Perfected means that the security interest is in the strongest form it can be which can assist in any battle between Secured Parties as to who gets first use of the collateral in being able to recover and discharge their debt and which may also protect that Secured Party against third party purchasers.
The PPSA does not care what the form of document is that creates the security interest, whether it is in the form of a
The key way in which a security interest is able to be perfected is through registration on the PPSR. The golden rule
In Substance Security
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is that first in time prevails, or “you snooze you lose”. Further, the PPSR, being the sole place in which personal property security interests are registered, acts as a notice board to all others wanting to lend and take security. The opposite is also true, if you had the chance to register and perfect but did not, then you cannot complain if someone else, on checking the register and seeing it clear, takes security and gets a first place ranking.
Deemed Security Interests The PPSA further widened the scope of what is a security interest by deeming certain types of transactions as security interests, some potentially obtaining “super priority” if properly registered. Certain types of transactions, such as leases, may not fall within the “substance test” and without the deeming provisions would not be able to be captured under the PPSA. Failing to recognise these types of transactions would have been a large gap in what is otherwise a uniform code and if left out would mean a party searching the register and not finding these transactions may be misled as to the extent to which a Grantor has financed its activities. So the PPSA included provisions which stated that if a lease is for over 2 years (or has been going for at least 2 years where there is no term) and where leasing is a regular part of the Secured Party’s business (that is a “PPS Lease”), then even if it was not in substance a security (say because at the end of the term the leasehold item, say a car, would be returned to the lessor) nevertheless it would be “deemed” to be a security interest. The same rules then would apply, failure to register would leave the lessor’s security interest unperfected.
