Personal Property Securities Act 2009 (PPSA 2009) makes sweeping changes to the priority rules that applied under the Corporations Act 2001 (Cth) and the general law. Perhaps the most fundamental change is that legal or equitable title will be irrelevant in determining a priority dispute between competing security interests. PPSA 2009 introduces the radical concept that a person who has no legal or equitable title to personal property can nevertheless grant a security interest in the property that will take priority over the claim of the lawful owner of the property. If the lawful owner of the property, such as a lessor or bailor, has a security interest in the personal property according to the extended definition of security interest in section 12 of PPSA 2009, then he should perfect that security interest to preserve his priority. Priority disputes will be resolved by recourse to the priority rules in PPSA 2009, not by reference to who has title to the property.
PPSA 2009 creates two types of priority rules: specific priority rules and default priority rules. The specific priority rules are designed to deal with particular situations in which priority disputes arise. Interestingly, they are not confined to PPSA security interests. They can apply to security interests that are not covered by PPSA 2009, for example, repairers’ liens or some maritime liens.
The default priority rules apply as a set of residual rules where there is no relevant specific priority rule. Under the default priority rules, a security interest in one of the six different types of controllable property that is perfected by control, trumps a security interest in that property perfected by any other means, for example, registration. With this exception, priority generally goes to the security interest that was perfected first-in-time by registration. Perfected security interests have priority over unperfected security interests. Unperfected security interests rank in priority according to their time of attachment.
It is possible to construct a hierarchy of priority for security interests blending the specific priority rules and the default priority rules [see O’Donovan; Personal Property Securities Law in Australia (Thomas Reuters, 2009), para [35.1510]] but it is too complicated for the present exercise. It is sufficient to note the following features:
the parties can vary the priority rules by entering into a subordination agreement;
the priority rules for collateral apply equally to the proceeds of the collateral;
a secured party can make further advances on the security of the collateral without worrying about how the further advances affect second or subsequent ranking security interests, whether or not the secured party was obliged to make the further advances and whether or not the further advances were used to improve the collateral;
there are special priority rules for crops, livestock, accessions (ie additions to personal property such as an audio system in a motor vehicle) and processed or commingled goods (such as sugar in ice cream and iron ore stockpiles); and/or
- the priority rules are different from the pre-PPSA 2009 priority rules and will require careful attention.
For further information about PPSA 2009, please contact:
|Dr James O’Donovan||Daniel Butler|
|(08) 9288 6804||(08) 9288 6714|