13/09/2016, 09:36:AM
13/09/2016, 09:36:AM
What is Perfection under the PPSA!
As the economy changes so do the requirements to protect your interests in personal property and with lending of money.
Perfection of a security interest serves a publicity function, and is governed by the Personal Property Securities Act2009 (Cth).
Under the Act a security interest is perfected if it has attached to the collateral; written requirements have been complied with; and perfection steps have been carried out under section 21(2) of the Act. The security interest is only perfected when all the requirements have been met. If one condition is missed the interest will not be perfected.
As example: Sally says to her friend Joe that her business is doing well, and she wants to move to a larger warehouse. Sally borrows $150,000 from Joe on 20 May 2016. Joe takes a security interest in the plant and equipment of Sally’s business but fails to get Sally to sign the written agreement and register the interest on the PPSR. On the 2 Jun Sally runs off with $150,000, and the business goes into liquidation a short time later. The liquidator sells the plant and equipment to pay the business debts. Joe hearing of this fact wants to claim the money owed to him. As Joe’s interest is not perfected correctly with a signed agreement and registered, the buyer of the plant and equipment will take title of the property without issue due to the unperfected security interest by Joe, and the liquidator may use the proceeds of the sale to pay the business debts.
Where there is more than one perfected security interest, the first perfected security interest in time registered is the one that holds priority above the other perfected interests. A perfected security interest takes priority over an unperfected security interest; and priority between two or more unperfected security interests is determined in favour of an earlier attached security interest over a later one.
A perfected security interest which is registered and complies with the Act may become unperfected if the registration period expires or the registration is discharged; and if there is a material change in the registration details.
There are many important issues with perfecting a security interest and its prudent that legal advice is obtained early to ensure proper security protection is applied.
As example: Haley is a manufacture of clothes and on 3 June 2016 gives a security interest in 650 ladies suits stored in its warehouse to Alex Pty Ltd. Haley on 5 Jun delivers the suits to Big C transport to send them to Haley’s Sydney warehouse. Big C issues to Haley a transport notice called a bill of lading, but Haley askes Big C to issue the bill of lading to Alex Pty Ltd. Then on the 6 June Haley grants another security interest over the same suits to RPS Pty Ltd and they perfect their security interest in the same with registration on the PPSR. Haley on the 7 June defaults on payment. The question is who holds priority between the 2 interested parties? In this situation Alex Pty Ltd will hold priority on the basis of temporary perfection over RPS Pty Ltd.
Perfection of a security interest in its entirety is the best protection a secured party can aspire to within the statutory framework.
So no matter whether you are buying or selling goods, or acting as a financier, take the extra step and get that legal advice to protect your legal rights & interests.
The comments in the aforementioned do not constitute legal advice and are general in nature, and if legal advice is required please contact: John Melis at Legal AU Pty Ltd (03) 9999 7799
Legal AU Pty Ltd Lawyers are “Liability limited by a Scheme approved under Professional Standards Legislation.”
