Asset protection: How to comply with the new Personal Property Securities Regime - Part 2
In Part one of our Blog on Personal Property Securities law reform we focused on the problems with the old scheme and the need for a national register and outlined the key objectives that Personal Properties Security Act 2009 (the PPSA) attempts to achieve.
In Part two of our Blog on Personal Property Securities law reform we address the key differences in definition between personal property and a personal property security and examine the rules of priority when there are competing security interests over the same property.
What is personal property?
The PPSA defines personal property is any property other than land and buildings (real property or real estate). Personal property is not only tangible things such as motor vehicles, machinery, office furniture, currency, artworks and stock-in-trade, but also includes intangible things such as contract rights, uncertificated shares and intellectual property rights.
What are personal property securities?
Personal property securities are defined as either ordinary or reserve securities. Ordinary securities include mortgages, charges, liens and pledges. They occur where a debtor grants a creditor an interest in the personal property. Reserve securities include leases, hire purchase agreements, bailments, sales by installment and reservation of title arrangements.
Unlike ordinary security interests, reverse security interests do not involve the borrower or debtor transferring an interest in property to the creditor. The creditor keeps the ownership of the property but gives possession of the property to the debtor. The obligation is secured because the owner keeps ownership until the obligation is performed.
The PPSA regulates a vast array of arrangements in commercial use which enable a lender to have recourse to particular property should a debtor default in the payment of money or performance of an obligation. It may be necessary for businesses to adjust its terms of trade and register its security interest to protect its interest in property if its customer becomes insolvent.
The Rules of Priority
The PPSA changes the way in which the rights of ownership and priority between security interests will be determined and enforced with perfected security interests taking priority over unperfected interests. It is important to understand these priority rights to ensure that security interests are appropriately registered. They also ensure that secured parties and purchasers of the security interest understand the priority of rights over the particular security interest concerned.
Perfection of a security
Perfection of a security is enforceable against third parties and the grantor's liquidator or administrator. Whilst perfection can occur in a number of ways (including by taking possession or control of the collateral), most security interests in personal property will be perfected by the registration of financing statement in respect of that security interest on the Personal Property Security Register.
It is important to understand these priority rights to ensure that security interests are appropriately registered. They also ensure that secured parties and purchasers of the security interest understand the priority of rights over the particular security interest concerned.
Attachment of a security
Attachment indicates the parties' intentions to be bound to the security arrangement. An attachment of a security is enforceable against the grantor. It occurs at the time in which the grantor's rights in the collateral become subject to a security interest.
The criteria for attachment are that:
- The grantor has rights in the property and the power to transfer rights in the property to the secured party;
- The secured party provides the value and the grantor confers a security interest through their actions.
Often, attachment will occur when the grantor and the secured party enter into a written security agreement (now commonly referred to under the new PPSA regime as a general security agreement).The security interest must be attached to the property for the secured party to have enforceable rights even if limitations exist.Back