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What
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PPSA?
Whatis is
PPSA?
October 2015
September 2015
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PPSA Coverage
What is the PPSA?
What is the PPSR?
The Personal Property Security Act (PPSA) sets out the rules for security
interests in personal property. It is a national act and applies to personal
property. Personal property is the description for all property other than real
property (which is land and buildings). [PPSA website and FH presentation]
The Personal Property Security Register
(PPSR) is an important part of the PPSA.
The PPSR is a single national online
register recording details of registered
security interests and company charges.
The register is effectively a noticeboard of
security interests.
The PPSA establishes uniform rules for:
 Creating valid and enforceable security interests;
 Setting the priority between competing security interests;
 When you can enforce a security interest after an insolvency event; and
 Circumstances where personal property is acquired free of a security
interest. [F
What is Personal Property?
Personal property is any property other than real property, which consists of
land and buildings or fixtures and fittings. Real property is not covered by the
PPSA.
What is a Security Interest?
There are a number of terms in the PPSA that are important to understand.
Security interest is an interest in an item of personal property that secures
payment of a debt or other obligation, regardless of the form of the
transaction. A security interest arises out of contracts or agreements between
parties.
Secured party is a person who holds a security interest for the person’s own
benefit or for the benefit of another person, or both.
Personal property can include:
Grantor is the person who provides the secured party with a security interest.
 Motor Vehicles
 Boats and Watercraft
 Intangible and Intellectual Property
 Crops and Livestock
 Extracted Minerals
 Satellites and Space Objects
 Financial Property
 Inventory
 Consumer and Commercial Property
Collateral is personal property that has a security interest attached.
Security agreement provides evidence of the grantors intention to grant the
security interest to the secured party.
A security interest in collateral is made enforceable through the execution of a
security agreement. The parties to a security agreement are the grantor and
the secured party. In the PPSA, holding title to personal property is not
relevant. The fact that title to collateral is held by a party other than the
grantor does not affect the application of the PPSA (for example retention of
title stock).
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Purchase Money Security Interest
Secured party
Delivers stock subject to
retention of title
Supplier
Grantor
Supplies stock
Customer
Supplier
Security Interest
Customer
(Secured
Party)
Granted to the secured
party by the Grantor
(Grantor)
PMSI attaches to stock
What is a Purchase Money Security Interest (PMSI)?
A PMSI is a type of security interest where there is a direct link between the
collateral and the obligation. An example would be retention of title stock, or
specific asset finance. The PPSA gives PMSIs a super-priority over other
undifferentiated or general security interests. For a PMSI, the obligation that is
secured by the collateral relates directly to the collateral itself.
For example, a bank may advance funds to a company and this gives rise to a
security interest in all of the Company’s property. This is a General Security
Interest, otherwise known as an All Present and After Acquired Property
(AllPAAP) interest. A delivery of stock subject to retention of title is a PMSI.
This PMSI will rank first over that stock, even through the AllPAAP security
interest over all of the property of the company was created earlier.
PMSI also attach to proceeds of collateral if that collateral is sold, as outlined in
the adjacent diagram. A PMSI can attach to proceeds of sale if the customer
was to on-sell the collateral again.
Proceeds can also include insurance funds received, for example if stock is
destroyed before sale, but is insured and funds are received from an insurer as
compensation for the lost stock. The insurance monies constitute proceeds, and
PMSIs can attach to them.
… then,
Sells stock to
third party
Supplier
(Secured
Party)
Customer
(Grantor)
Buyer
PMSI
Becomes a
debtor
PMSI attaches to
proceeds
$
Debtor represent
proceeds of PMSI
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PPSA enforcement
How do I enforce a security interest?
In order for a security interest to be enforceable against third parties, there are
three requirements:
Practically, providing some evidence that the grantor has read and agreed to
the terms of a security agreement is usually sufficient. Importantly, the security
agreement must specify that the grantor acknowledges the existence of, and
grants a security interest to, the secured party.
Perfection
Attachment (when the
transaction occurs)
Enforceability (security
agreement)
Perfection (registration on
the PPSR, usually or control)
Valid Security
Interest,
Enforceable
Against a Third
Party.
Attachment
A security interest can only be effective if it is attached to collateral.
Attachment to collateral occurs if the grantor has rights or the power to
transfer rights in the collateral to the secured party and either:
 Value is given for the security interest; or
 The grantor does an act by which the security interest arises.
Security interests are only enforceable against competing claims if they are
perfected. A security interest is perfected either through registration on the
PPSR, by control, or through taking possession of the collateral by the secured
party. In order for perfection to be effective, a security interest must have
attached and must be enforceable.
The most common form of perfection is through registering on the PPSR.
Registration is only effective if there is a valid security agreement granting the
secured party with a security interest.
What security interests get priority over others?
If more than one secured party has a security interest in the same asset (e.g.
stock) and no insolvency event has occurred, then a Receiver or Controller must
apply the PPSA priority rules to resolve conflicts.
In summary these are:
The following Security Interest…
Has priority over…
Perfected security interest
Unperfected security interest
Enforceability
Perfected by control
Perfected by any other means
Attachment does not guarantee enforceability. For a security interest to be
enforceable, a security agreement must be in place. A security agreement
should be in writing and usually signed by the grantor e.g. customer, to be
enforceable.
Perfected first (in time) e.g.
registration time on PPSR
Perfected later (in time) (unless a
PMSI)
PMSI
General Security Interest
Attachment happens when a transaction occurs or goods are delivered, for
example when stock is delivered, and the grantor grants a security interest in
the stock to the secured party.
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PPSA vesting and transitional provisions
Collateral is tangible
property
Collateral is intangible
property
Collateral is inventory
The security interest must
be registered prior to the
time the grantor obtains
possession of the
collateral.
The security interest must
be registered before the
time the PMSI attaches, or
is created, over the
inventory.
Collateral is not
inventory
The security interest must
be registered within 15
business days of the
grantor obtaining
possession of the
collateral.
The security interest must
be registered within 15
business days of the
grantor obtaining
possession of the time of
attachment, or creation,
of the PMSI.
Source: Personal Properties Securities Act Website
https://www.ppsr.gov.au/purchase-money-security-interests
What is Vesting?
Certain security interests which are unperfected immediately before an
insolvency event automatically vest in the grantor.
If any of these events occur, an unperfected security interest will vest in the
grantor and the security interest holder claim will become an unsecured
claim. This means that the property subject to the security interest
(retention of title stock, leased equipment etc.) will not be recoverable by
the security interest holder and instead stay with the grantor, regardless of
who has the legal title to the relevant assets.
What are Transitional Provisions?
In order to allow for entities to transition into the implementation of the
PPSA, the PPSA provided for a two year period where entities were able to
register a security interest which arose under security agreements that were
in existence prior to 30 January 2012 (transitional security agreement).
A secured party remains able to perfect their transitional security interests by
registering each interest on the PPSR after 30 January 2014 (the end of the
transitional period).
However, secured parties who register after the end of the transitional period
can lose priority to subsequently created security interests that are registered
on the PPSR before the transitional interests are registered.
Vesting is a significant issue arising under the PPSA, and represents a very
substantial risk to suppliers of goods subject to retention of title, lessors or
owners of equipment used by a company, or anyone with a security interest.
Unperfected security interests will vest in the grantor on the occurrence of an
insolvency event.
An insolvency event includes:
 Appointment of a Voluntary Administrator
 Appointment of a Liquidator or a Trustee in Bankruptcy
 Execution of a Deed of Company Arrangement
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How Ferrier Hodgson can assist
PPSA Efficacy Review
Ferrier Hodgson have several PPSA subject matter experts, and are well placed
to review your PPSA policies and procedures, advising on their effectiveness or
otherwise in the event one of your customers experiencing an insolvency event.
To ensure your security interests are not at risk, contact us for more
information and a free initial discussion.
Customer Screening: Independent Business Reviews
Ferrier Hodgson are frequently retained to review substantial debtor exposures
for companies by checking PPSA registrations and the ability of aged debtors to
meet their obligations. Contact us for more information regarding our
Independent Business Review Services.
PSiDAR is a mobile application enabling users to easily and conveniently access
and search the PPSR. To download the PSiDAR Application for iOS & Android,
please use the following links.
PSiDAR Application for iOS.
PSiDAR Application for Android.
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