The introduction of the Personal Properties Securities Act 2009 (Cth) (PPSA) changed the landscape for secured creditors (Secured Parties) upon a debtor’s (Grantor) insolvency or bankruptcy. In short, the PPSA allows Secured Parties to register their interests in a Grantor’s assets on the Personal Property Securities Register (PPSR). Under the PPSA, it is registration of a security interest on the PPSR that (generally) determines the priority of Secured Parties in the event that the Grantor becomes insolvent or bankrupt.
The priority rules established by the PPSA replace the former common law and equitable rules which governed priority of security interests and are very similar to old system title priorities under registration of deeds legislation. The rules apply to two or more competing security interests.
Determining what priority rules apply
Pursuant to section 55 of the PPSA, if the Act provides no other means for determining the priority of multiple security interests over the same collateral, the rules in section 55 (Default Priority Rules) will apply.
The Default Priority Rules
The Default Priority Rules are:
- perfected (generally, registered) security interest takes priority over unperfected security interests (section 55(3));
- a perfected security interest with an earlier priority time takes priority over perfected security interests with a later priority time (section 55(5)); and
- an unperfected security interest that was attached to the collateral at an earlier time (Attachment Time) takes priority to unperfected security interests with a later Attachment Time
Determining priority time
From the above, it is evident that central to priority of perfected security interests is the priority time. For this reason it is imperative to understand how a security interest’s priority time is calculated. Pursuant to section 55(5) of the PPSA, a security interest’s priority time is the earliest of the following:
- the registration (on the PPSR) time;
- the time the secured party or a nominee of the secured party first perfects the security interest by taking possession or control of the collateral; or
- the time the security interest is temporarily perfected, or otherwise perfected, by force of the PPSA.
It is important to note that as per section 55(6) of the PPSA, in order for any of the events stated above to generate the security interests priority time, the security interest must remain perfected after this time. In other words, if a security interest is perfected by taking possession of the collateral, the time at which
possession was taken will only remain its priority time for as long as possession of the collateral is retained or the security interest is otherwise perfected.
Determining Attachment Time
As mentioned above, the priority of unperfected security interests is determined by their Attachment Time. Consequently, it is essential to understand when a security interest attaches to collateral and thus generates an Attachment Time.
Pursuant to section 19 of the PPSA, a security interest attaches to collateral when the Grantor has:
- rights in the collateral;
- or the power to transfer rights in the collateral to the Secured Party; and
- value has been given for the security interest; or
- the Grantor does an act by which the security interest arises.
Taking a simple example, where a Grantor is offering their personal motor vehicle as security for a loan, subject to a general security agreement (GSA), the Attachment Time will be when the Grantor enters into the GSA, as at that time, they have done an act by which the security interest arises.
Examples of specific priority rules
Examples of situations where the general priority rules are affected by more specific priority rules include:
- where the security interest in question is a Purchased Money Security Interest (PMSI); and
- where the collateral that is the subject of the security interest has been transferred.
Links and further references
Legislation
Personal Property Securities Act 2009 (Cth)
Cases
Citadel Finance Corporation Pty Limited v Elite Highrise Services Pty Ltd (No 3) [2014] NSWSC 1926
In the matter of Gelpack Enterprises Pty Ltd (in liquidation) [2015] NSWSC 1558
Further information about the PPSA and PPSR
If you need advice on your company’s security interests or the PPSR generally, contact us for a confidential and obligation-free discussion:
Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
T: +61 7 3221 0013 (preferred)
M: +61 419 726 535
E: mburrows@dundaslawyers.com.au
Disclaimer
This article contains general commentary only. You should not rely on the commentary as legal advice. Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.
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