The Personal Property Securities Act 2009 (Cth) (PPSA) introduced comprehensive Commonwealth legislation which now governs all aspects of the use of personal property as security for credit or the performance of obligations. It erodes some traditional rights of the holder of title in personal property. It does this by deeming the title interest to be a security interest.

 A significant aspect of the PPSA is the creation of the Personal Property Securities Register (PPSR) – a single national, centralised, searchable register of registered 'security interests' in personal property. The introduction of the PPSR replaced many of the previously existing registers for company charges, bills of sale and motor vehicle securities.

Understanding the PPSA is very important as failure to take steps to protect your security interest in personal property (such as registration of your interest on the PPSR) may result in loss of your security or your title to personal property. In the construction industry, examples of where the PPSA is particularly relevant include equipment leases, retention of title clauses and step-in rights.

Key concepts

The PPSA applies to security interests in relation to personal property. Understanding the PPSA therefore starts with understanding these two concepts.

Where a security interest in personal property exists, there can be important consequences if the secured party fails to take steps to protect its interest. These consequences may include:

  • loss of priority in relation to other competing security interests in the same personal property;
  • the security interest is more susceptible to 'extinguishment' (ie loss of the security interest including loss of title);
  • the security interest will be lost if the party giving the interest becomes insolvent.

These concepts will be examined further in the section Understanding priority and extinguishment.

What is personal property?

Generally, 'personal property' includes all property other than:

  • land (including all estates and interests in land);
  • fixtures (goods affixed to land other than crops); and
  • government granted rights and authorities.

There are two broad sub-categories of personal property under the PPSA, 'consumer property' and 'commercial property'. Consumer property is property 'predominantly for personal, domestic or household purposes'. In a construction context the personal property will be commercial property. The understanding of these sub-categories can be important in terms of how:

  • a financing statement is lodged on the PPSR; and
  • enforcement rights may operate with respect to the security interest.

What is a security interest?

Security interests generally

Generally a 'security interest' for PPSA purposes has two main elements:

  • it is an 'interest' in relation to personal property;
  • provided for by a transaction that in substance secures payment or performance of an obligation (irrespective of the form of the transaction or who has title to the property).

An 'interest' in personal property includes any right in relation to that property. However, some interests such as a right to 'set-off' are specifically excluded from the PPSA (section 8 of the PPSA).

Examples of security interests include mortgages, charges, leases, retention of title arrangements, consignments, pledges and hire purchase agreements. However, the definition of security interest is 'substance over form' – what is important is not the name used to describe the transaction (for example 'charge' or 'mortgage'), but whether the transaction in substance secures payment or performance of an obligation.

Deemed security interests and PPS Leases

An addition to the general rule is that the PPSA deems certain other interests to be 'security interests' even if there is no element of securing payment or performance of an obligation (ie the second element is not required).

An important type of deemed security interest is a 'PPS Lease'. A 'PPS Lease' may include certain leases or bailments of goods depending on the term of the agreement, type of goods and the business practices of the lessor/bailor. Common examples of possible PPS Leases include a hire-purchase agreement or a lease In order to determine whether a lease or bailment is a PPS Lease it is important to understand the term of the agreement. A PPS Lease means a lease or bailment of goods:

  • for an indefinite period;
  • for a term of more than 1 year (including a term up to 1 year that is automatically renewable or renewable at the option of one of the parties so that the total possible term exceeds 1 year); or
  • for goods that may or must be registered by serial number (for example, motor vehicles, boats, aircraft and certain types of intellectual property), for a term greater than 90 days. The definition of motor vehicle under the PPSA is broader than might be expected – it can include things like front end loaders, cranes and other vehicles which do not need to be registered to travel on roads.

In March 2014, a bill was introduced into Parliament to remove the provision that deems a lease of serial-numbered goods for a term greater than 90 days to be a PPS Lease. If the bill is passed, then only leases for an indefinite term or a term greater than one year will be deemed PPS Leases (irrespective of whether the leased goods are serial numbered or not). However, a lease with a term less than one year may still be a security interest if it secures payment or performance of an obligation.

An element in the definition of PPS Lease is that the lessor or bailor should be regularly engaged in the business of bailing or leasing goods. This does not mean that leasing or bailing goods needs to be the only business (or even the principal business) of the owner of the goods. The more often that a person engages in bailing or leasing goods the more likely that this element of the test will be satisfied.

For details regarding other types of deemed security interest, see section 13 of the PPSA.

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