April 2011

making business sense

www.corrs.com.au

an overview of the Personal Property

securities act 2009

all content © Corrs Chambers Westgarth, 2009-2011

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Table of Contents Introduction ......................................................................................................................................... 3 Key concepts ...................................................................................................................................... 5 Overview of the Act’s provisions .......................................................................................................... 8

General rules relating to security interests (s. 17-22) ................................................................... 8 Attachment and Perfection – special rules (s. 30-40) ................................................................. 10 Acquiring personal property free of security interests (s. 41-53) ................................................. 12 Priority between security interests generally (s. 55-61) .............................................................. 14 Specific Rules for Certain Security Interests (s. 82-106) ............................................................ 17 Enforcement (s. 107-144) .......................................................................................................... 19 Personal Property Securities Register (s. 145-203) ................................................................... 23 Judicial Proceedings (s. 204-252) ............................................................................................. 25 Operation of laws (s. 232-252) .................................................................................................. 25 Vesting of certain unperfected security interests in the grantor (s. 267 & 267A) ......................... 26 Transitional Provisions (s. 304-343) .......................................................................................... 28

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Introduction On 14 December 2009, the Personal Property Securities Act 2009 (Cth) (the Act) together with the Personal Property Securities (Consequential Amendments) Act 2009 (Cth) received Royal Assent. Subsequently, the Act was amended by the Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth), which received Royal Asset on 6 July 2010. The substantive operation of the Act will commence after the registration commencement time (RCT), expected to be in October 2011.

After a consultation period Personal Property Securities Regulations 2010 (Cth) (the Regulations)were made on 24 November 2010.

There is currently a bill before parliament (Personal Property Securities (Corporations and Other Amendments) Bill 2011 (Cth) (the Amending Bill)) which amends both the Act and some Corporations Act 2001 (Cth) provisions. There is also an expectation that more regulations will be made prior to RCT.

To date, legislation for the referral of relevant powers to the Commonwealth has been passed by all States and Territories except Western Australia.

The Act follows extensive consultation following the release by the Attorney-General’s Department of three discussion papers in November 2006, March 2007 and April 2007 and an exposure draft of the Act in May 2008. An Exposure Draft of the Personal Property Securities Regulations was the subject of public consultation in 2010.

Currently, there are more than 70 separate Acts which regulate personal property securities in Australia giving rise to multiple registration requirements, inconsistent priority rules, and cross-border anomalies. These statutes are also supplemented by the application of the common law and equity. The Act is intended to harmonise the law and practice on personal property securities through a single federal Act supported by a single online register which the government has decided will be operated by the Insolvency and Trustee Service Australia (ITSA).

Personal property includes all forms of tangible property (eg goods) and intangible property (eg trade marks and licences) and excludes land and certain prescribed statutory rights and licences (eg water rights and gambling licenses). The Act draws on similar reforms in New Zealand, Canada and the USA. It takes a functional approach in that it applies to all security interests in personal property which secure payment or performance of an obligation regardless of the form of the transaction, the legal personality of the grantor or the jurisdiction in which the property or parties are located or in which the transaction occurs. It also applies to some interests in property regardless of whether they secure payment or performance of an obligation (such as commercial consignments and certain leases and bailment arrangements deemed to be “PPS Leases”).

The reforms will require financiers to modify security documents and procedures in relation to charges, mortgages over all property other than land, vehicle and equipment leases and hire purchase agreements. In particular, the company charge registration system under the Corporations Act will be replaced and, consistent with the functional approach of the reforms, the concepts of a floating charge and crystallisation which were previously significant in an insolvency will be redundant. Instead, extinguishment provisions in the Act will protect a third party who acquires an interest in a circulating asset (eg currency, accounts or inventory not controlled by the secured party).

The Act will also replace State and Territory registration systems for motor vehicle and boat encumbrances and for bills of sale. Securities interests given by individuals which were not formerly registrable will now become registrable and subject to a statutory priority and enforcement regime, thereby giving greater certainty to financiers and promoting investment in new classes of assets.

While financiers can be expected to manage the transition to a single PPS law, manufacturers and suppliers not accustomed to the registration of security interests will face a particular challenge. Rights

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of suppliers in respect of commercial consignments and retention of title arrangements will constitute security interests which will need to be perfected by registration to minimise the risk of being defeated.

Manufacturers and suppliers should also pay attention to the Act’s provisions concerning processed and commingled goods, and accessions (goods attached to other goods) for which special rules on priorities, extinguishment and enforcement apply (Part 3).

The Act recognises purchase money security interests. These are security interests taken to arise:

(a) under a retention of title arrangement in favour of a seller of property securing payment;

(b) in favour of a financier obtaining security over property upon financing its purchase price;

(c) in favour of a lessor; and

(d) in favour of a commercial consignor.

These confer a “super priority” on the secured party but can still be defeated by a competing security interest perfected by control.

The Act authorises the registration of a financing statement that describes personal property before or after a security agreement is made covering the property, or a security interest has attached to the property. This allows prior registration thus alleviating the risks associated with delays in attending to registration of a security interest after settlement in a finance transaction.

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Key concepts A security interest is an interest in relation to personal property provided for by a transaction that in substance secures payment or the performance of an obligation and includes some categories of interests whether or not the transaction concerned secures payment or performance of an obligation. Examples include a charge, chattel mortgage, conditional sale, hire purchase, pledge, trust receipt, consignment, goods lease, assignment, transfer of title and flawed asset arrangement. Examples which arise regardless of whether a transaction secures performance of an obligation include an interest of a transferee under a transfer of an account or chattel paper; the interest of a consignor who delivers goods to a consignee under a commercial consignment and the interest of a lessor or bailor of goods under a PPS lease.

Collateral is the personal property to which a security interest is attached and in relation to a registration with respect to a security interest, includes personal property described by the registration.

Generally, a grantor is a person who has an interest in personal property, to which a security interest is attached. It also includes a person who receives goods under a commercial assignment, a lessee under a PPS Lease, a transferor of an account or chattel paper, a successor to any of the above and in relation to a security interest registration, and the person registered as grantor.

A secured party is generally a person who holds a security interest for the person’s own benefit of the benefit of another.

A purchase money security interest (PMSI) means any of the following:

(a) a security interest taken in collateral to the extent that it secures all or part of its purchase price; or

(b) a security interest taken in collateral by a person who gives value for the purpose of enabling the grantor to acquire an interest in the collateral, to the extent that the value is applied to acquire those rights; or

(c) an interest of a lessor or bailor of goods under a PPS lease; or

(d) an interest of a consignor who delivers goods to a consignee under a commercial consignment,

but does not include:

(a) an interest acquired under a transaction of sale and lease back to the seller;

(b) an interest in collateral that is chattel paper, an investment instrument, an intermediated security, a monetary obligation or a negotiable instrument; or

(c) a security interest in collateral that at the time of attachment the grantor intends to use predominantly for personal, domestic or household purposes,

except where the collateral would otherwise be a PMSI, is used predominantly for personal, domestic or household purposes and is required or permitted by the regulations to be described by serial number.

Attachment and perfection: There are different rules which determine when a security interest attaches to collateral and when a security interest is perfected.

Generally, a security interest attaches to personal property when a person gives value for acquiring the security interest (or does something else to acquire it) and in return, the person gains rights in the collateral. When a security interest is attached, it is enforceable against the grantor.

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In contrast, a security interest is enforceable against a third party if the secured party has possession or control of the collateral or a written security agreement covers the collateral and is signed (or otherwise accepted) by the grantor.

A security interest will be taken to be perfected if it is attached to collateral, enforceable against third parties and:

(a) the collateral is registered;

(b) the secured party has possession of the collateral; or

(c) the secured party has control of the collateral.

The Act sets out rules to determine the priority of different secured parties. A secured party who holds a lower priority security interest has rights in relation to the collateral which are subject to those of a secured party who holds a higher priority security interest.

Proceeds of collateral to which a security interest is attached means identifiable or traceable personal property being:

(a) personal property derived from a dealing with collateral;

(b) a right to insurance or other indemnity or compensation payment for loss of collateral (or proceeds);

(c) a payment in total or partial discharge or redemption of collateral (or proceeds) if the collateral consists of chattel paper, intangible property, an investment instrument or intermediated security or a negotiable instrument;

(d) if the collateral is intellectual property (or an IP licence), the right of a licensor of the property to receive payments under a licence agreement; and

(e) if the collateral is an investment instrument or intermediated security, rights arising out of the collateral, property collected on the collateral and property distributed on account of the collateral.

Chattel paper means one or more writings that evidence a monetary obligation and either or both of the following:

(a) a security interest in, or lease of, specific goods, or specific goods and accessions to the specific goods;

(b) a security interest in intellectual property or a specific intellectual property licence,

but does not include a document of title, an intermediated security, an investment instrument or a negotiable instrument.

A PPS lease means a lease or bailment of goods:

(a) for a term exceeding one year;

(b) for an indefinite term which can be terminated within its first year;

(c) for a term up to one year but which is automatically or unilaterally renewable if the total terms exceed one year;

(d) for a term up to one year but where the lessee or bailee has consent to retain uninterrupted possession for a period exceeding one year.

Where the regulations provide that the goods may or must be described by serial number, the one year period in paragraphs (a), (c) and (d) is reduced to 90 days. Certain leases are specifically excluded from being PPS leases, including a lease where the lessor is not regularly engaged in the business of leasing goods.

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When registering a security interest under the register created by the Act, the collateral must be described as either consumer property or commercial property.

• If described as consumer property, description by serial number is mandatory for aircraft, intangible property (a design, a patent, a plant breeder’s right or a trade mark or a licence over any of these), motor vehicles and watercraft.

• If described as commercial property, description by serial number is optional for motor vehicles, watercraft and intangible property and mandatory for aircraft.

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Overview of the Act’s provisions

General rules relating to security interests (s. 17-22) When security interest is enforceable against the grantor – attachment (s. 18-19) A security interest is only effective if it has attached to collateral. This occurs when the grantor has rights in the collateral, or has power to transfer such rights to the secured party, and either value is given for the security interest or the grantor does some other act by which the security interest arises. The parties to a security agreement may agree that attachment occurs at a later time specified in the agreement.

A security agreement may provide for security interests in after-acquired property. This attaches without specific appropriation by the grantor.

A security agreement may provide for future advances.

A security agreement is taken to secure reasonable enforcement expenses unless otherwise agreed.

When security interest is enforceable against third parties (s. 20) A security agreement is enforceable against a third party in respect of particular collateral only if the security interest is attached to the collateral and one of the following applies:

(a) the secured party possesses the collateral;

(b) the secured party has perfected the security interest by control; or

(c) the security agreement that provides for the security interest is signed by the grantor (or adopted or accepted by the grantor by an act or omission that reasonably appears to be done with the intention of adopting or accepting the writing) and includes either a description of the particular collateral or a statement that the security interest is taken in all the grantor’s present and future property (whether or not other specific property is excluded).

If the property is described as “inventory” in the security agreement, the description is only effective while the property is held or leased by the grantor as inventory.

A security interest in the proceeds is enforceable against a third party whether or not the security agreement contains a description of the proceeds.

Perfection (s. 21-22) Perfection – main rule

A security interest in particular collateral is perfected if:

(a) the security interest is temporarily perfected, or otherwise perfected, by force of the Act; or

(b) the security interest is attached to the collateral and enforceable against third parties, and one or more of the following applies:

� the collateral is registered;

� the secured party has possession of the collateral (other than by seizure or repossession);

� if the collateral is an ADI account (in relation to which the ADI is the secured party), an intermediated security, an investment instrument, a negotiable instrument not evidenced by certificate, a right under a letter of credit, a satellite or other space object, the secured party has control of the collateral.

A single registration may perfect one or more security interests.

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Perfection – goods possessed by third party bailee

For goods in possession of a bailee (other than the grantor or debtor), a security interest is perfected if any of the following applies regardless of when attachment occurred:

(a) the security is perfected by registration;

(b) the security interest is perfected by possession because the bailee possesses the property on behalf of the secured party;

(c) the bailee issues a document of title to the goods in the name of the secured party; or

(d) the bailee issues a negotiable document of title to the goods, and the secured party has perfected a security interest in the document. Such a security interest is temporarily perfected for the period starting at the time the bailee issues a negotiable document of title to the goods and ending at the date the secured party takes possession of the document. These temporary perfection arrangements only apply if within 5 business days after the day of issue of the negotiable document of title, the secured party has taken possession of the document or the security interest is otherwise perfected.

Possession (s. 23-24) For the purposes of perfection through possession, a secured party cannot have possession of personal property if the property is in the actual or apparent possession of the grantor or the debtor or another person on the grantor’s or debtor’s behalf.

Conversely, a grantor or debtor cannot have possession of personal property if the property is in the actual or apparent possession of the secured party or another person on the secured party’s behalf.

In the case of goods being transported by a common carrier to a grantor or debtor, possession occurs only when the grantor, debtor or a person on the grantor’s or debtor’s behalf actually acquires possession of the goods or a document of title to the goods, whichever occurs first.

The Act contains special rules for the time at which a person is taken to take possession of negotiable instruments, chattel paper (including chattel paper evidenced by an electronic record) and investment instruments.

Control (s. 25-29) Like possession, control of certain types of personal property is effective to perfect a security interest in the property (including an ADI account, an intermediated security, an investment instrument, a letter of credit and a negotiable instrument not evidenced by a certificate).

The Amending Bill inserts section 26(3) which provides that a secured party has control of an intermediated security if there is an agreement in force under which the secured party, or a person who has agreed to act on the secured party’s instructions, is able to initiate or control sending of electronic messages by which the intermediated security could be transferred or dealt with.

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Attachment and Perfection – special rules (s. 30-40) Proceeds Proceeds are traceable whether or not there is a fiduciary relationship between the person who has the security interest in the proceeds and the person who has rights in, or has dealt with, the proceeds.

The proceeds of collateral that is comprised of crops include the harvested produce of the crops if the produce is identifiable or traceable. However, livestock are not proceeds merely because they are the unborn young, or offspring, of livestock that are collateral.

Proceeds – attachment, enforcement and priority If collateral gives rise to proceeds:

(a) the security interest continues in the collateral unless the secured party expressly or impliedly authorised a dealing giving rise to the proceeds or agreed that a dealing giving rise to the proceeds would extinguish the security interest; and

(b) the security interest attaches to the proceeds unless the security agreement provides otherwise.

On enforcing a security interest against both collateral (other than an investment instrument or an intermediated security) and proceeds, the amount secured by the security interest in the collateral and the proceeds is limited to the market value of the collateral immediately before the collateral gave rise to the proceeds (except where the transferee had actual or constructive knowledge that the transfer was in breach of a security agreement).

For the purposes of the default priority rules, the time of registration or possession or the time of perfection in relation to the original collateral, is taken to be the time of registration, possession or perfection in relation to the proceeds.

Proceeds – perfection A security interest in proceeds is perfected if the security interest in the original collateral is perfected by a registration that describes the proceeds (as prescribed in the regulations); or covers the original collateral (if the proceeds are of a kind within the description of the original collateral); or covers the original collateral if the proceeds consist of currency, cheques or an ADI account, or a right to an insurance payment or other indemnity or compensation payment for loss or damage to the collateral or proceeds.

Regulations schedule 1, part 2.4: When registering a security interest under the register created by the Act, any proceeds must be described as:

• all present and after acquired property; or

• for a particular item of personal property – in a way that identifies the item, including identifying a class to which the item belongs; or

• for a class of personal property – in a way that identifies the class, including identifying the class by identifying a larger class of personal property that wholly includes the class.

If a security interest in original collateral is perfected but a security interest in the proceeds is not perfected, the security interest in the proceeds is temporarily perfected for 5 business days from the time the security interest in the original collateral attaches.

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Temporary perfection after transfer of collateral If collateral is transferred and at the time of transfer a secured party held a perfected security interest in it, the security interest is temporarily perfected from the time of transfer ending at the earlier of the following times:

(a) after 24 whole months;

(b) if the security interest was perfected by registration, at the end time for registration as registered at the time of transfer;

(c) if another security interest attaches at or after the transfer and the other security interest is perfected, then 5 business days after the transfer if the original secured party consented to the transfer or otherwise 5 business days after acquiring knowledge of the transfer.

Returned collateral Through a process of temporary perfection, the Act gives a secured party a limited opportunity to avoid loss of perfection of a security interest in various circumstances where collateral is returned:

(a) in the case of bailed goods or documents of title perfected by possession, for sale or exchange or preparatory actions such as loading, unloading, storing, shipping, manufacturing, processing or packaging;

(b) in the case of negotiable instruments or investment instruments perfected by possession or control, for sale, exchange, presentation, collection, renewal or registration (other than under the Act).

The secured party has just 5 business days to perfect the security interest, otherwise it becomes unperfected.

Unsuccessful sale or lease

If a grantor or debtor sells or leases goods that are subject to a security interest and the buyer or lessee takes the goods free from the security interest because of the Act, the security interest re-attaches at a particular time (repossession time) if, at that time, the goods come into the possession of the grantor or debtor (or of a transferee of chattel paper created by the sale or lease) in any of the following circumstances:

(a) in the case of sale – the contract of sale is rescinded;

(b) in the case of a lease – the lease expires or is rescinded;

(c) the transferee seizes the goods in the exercise of a right to enforce a security agreement;

(d) the grantor or debtor repossesses the goods in the exercise the sale or lease contract.

In these cases, the perfection of the security interest and the time or registration or perfection are to be determined as there had been no sale or lease if the security interest was perfected by registration before the time of acquisition and the registration is effective at repossession time.

Deemed goods security interest

If a sale or lease of goods creates an account or chattel paper which is transferred to another person, the transferee is taken to have a security interest in the goods if at a particular time (repossession time), the goods come into possession of the transferor or transferee in the following circumstances:

(a) in the case of sale – the contract of sale is rescinded;

(b) in the case of a lease – the lease expires or is rescinded;

(c) the transferee seizes the goods in the exercise of a right to enforce a security agreement;

(d) the grantor or debtor repossesses the goods in the exercise the sale or lease contract.

The deemed goods security interest attaches at the repossession time. If the transferee has a security interest in the account or chattel paper that is perfected by possession or registration at repossession

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time, the deemed goods security interest is temporarily perfected for 5 business days from repossession.

Relocation of collateral or grantor to Australia Where collateral which has been located in a foreign jurisdiction is relocated to Australia, the security interest is taken to be continuously perfected for a certain period if, immediately before relocation to Australia, the collateral was effective and subject to a security interest under a security agreement enforceable against third parties. The period of continuous perfection commences upon the date the security interest last became perfected under the relevant foreign law, was otherwise registered or notified in accordance with that foreign law, or otherwise became effective against 3rd parties in the foreign jurisdiction). It ends upon relocation to Australia. If the relevant foreign law provides for perfection, registration or notification of the security interest, it must remain perfected, registered or notified at the date of the relocation for continuous perfection to apply.

Upon relocation to Australia, the security interest is temporarily perfected until the sooner of expiry of 56 days or 5 business days after the secured party has actual knowledge of relocation.

A similar provision operates in respect of intangible property or financial property (chattel paper, currency, documents of title, investment instruments and negotiable instruments) which have been governed by the law of a foreign jurisdiction where the grantor becomes located in Australia or transfers collateral to a person located in Australia.

Acquiring personal property free of security interests (s. 41-53) The Act sets out when a person acquires an interest (that is not a security interest) in personal property by purchasing or leasing the property free of a security interest in the property.

� A buyer or lessee of personal property, for value, takes the personal property free of an unperfected security interest (except where the buyer or lessee is party to the transaction giving rise to the security interest).

� A buyer or lessee of personal property, for value, takes the personal property free of a security interest if the regulations provide that the property may or must be described by serial number in a registration and a search of the register using only the serial number would not have disclosed a registration that perfected the security interest. This does not apply where the buyer or lessee holds the property as inventory or on behalf of another person who would hold it as inventory, or the buyer or lessee was a party to the transaction giving rise to the security interest.

The Amending Bill amends this taking free provision to ensure that secured parties of serial numbered goods have the benefit of the 24 month transitional period for their transitional security interests when it is not currently possible to register by serial number. This amendment excludes migrated interests in motor vehicles and watercraft.

� A buyer or lessee for value of a motor vehicle of a kind prescribed, takes the vehicle free of a security interest if the regulations provide that the vehicle may or must be described by serial number and between the start of the previous day and the time of the sale or lease there is a time by reference to which a search of the register would not have disclosed a registration that perfected the security interest and the seller or lessor is the person who granted the security interest or another person in possession of the motor vehicle (after the grantor lost the right to possess the vehicle). This extinguishment does not apply if the secured party was in possession of the motor vehicle immediately before the sale or lease, the vehicle is bought at a sale or held by or on behalf of an execution creditor, the buyer or lessee holds the vehicle as inventory or on behalf of another person who would hold it as inventory or the buyer or lessee has actual knowledge the sale or lease breaches as security agreement.

Regulation 1.7: A ‘motor vehicle’ includes most cars, trucks, motor-cycles (both on-road and off-road) and self-propelled agricultural and mining equipment with a vehicle identification number, chassis number, or manufacturer’s number. A ‘motor vehicle’ also includes most trailers or caravans, and also some machinery or equipment (such as a plough or drill) with a vehicle

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identification number, chassis number, or manufacturer’s number that are designed to be towed behind or attached to an ordinary motor vehicle.

� A buyer or lessee of an interest in a motor vehicle would ordinarily acquire it free of a security interest if the regulations provide that motor vehicles of that kind may or must be described by serial number and the seller or lessor is in a class or persons prescribed by regulations. The purpose of this provision is to allow a person to buy or lease a motor vehicle from a motor vehicle dealer, free of a security interest, without the need to search the register. This extinguishment does not apply if the secured party was in possession of the motor vehicle immediately before the sale or lease, the vehicle is bought at a sale or held by or on behalf of an execution creditor, the buyer or lessee holds the vehicle as inventory or on behalf of another person who would hold it as inventory or the buyer or lessee has actual knowledge that the sale or lease breaches a security agreement.

Regulation 2.2: The seller or lessor is in a prescribed class if the seller or lessor:

• holds a licence (however described) to deal or trade in that kind of motor vehicle; and

• the licence is issued by a licensing authority in the State or Territory where the sale or lease of the motor vehicle happens.

� A buyer or lessee of personal property takes the personal property free of a security interest given by the seller or lessor if the personal property was sold or leased in the ordinary course of a business of selling or leasing personal property of that kind. This does not apply where personal property may or must be described by serial number and the buyer or lessee holds the property as inventory or on behalf of another person who would hold it as inventory. Also, it does not apply where the buyer or lessee has actual knowledge that the sale or lease breaches a security agreement.

� A buyer or lessee of personal property, for new value, takes the personal property free of a security interest if the buyer or lessee intends to use the personal property for personal, domestic or household purposes and the market value of the total new value given for the personal property is $5,000 or less. This does not apply if the property is of a kind which may or must be described by serial number in a registration or where the buyer or lessee has actual or constructive knowledge that the sale or lease breaches a security agreement. It does not apply if the buyer or lessee rightly believes the market value to exceed $5000;

� A holder of currency takes the currency free of a security interest if the holder acquires the currency with no actual or constructive knowledge of the security interest.

� The purchaser of an investment instrument or intermediated security in the ordinary course of trading on a prescribed financial market takes the instrument or intermediated security free of a security interest.

� The person (other than a secured party) acquiring an investment instrument by sale, lease, discount, assignment, negotiation, mortgage, pledge, lien, issue, reissue or any other consensual transaction takes the instrument free of a security interest if the purchaser gives value for the instrument and takes possession or control of the instrument (unless the purchaser has actual or constructive knowledge of a breach of a security agreement).

� A transferee who takes an interest in an intermediated security takes the intermediated security free of a security interest if the transferee gives value for the interest (unless the interest acquired is itself a security interest) and the credit of the interest in the underlying financial product is made under a consensual transaction. This does not apply if, when the interest is taken, the transferee has knowledge that crediting the interest in the financial product would breach a security agreement which provides for any security interest in any intermediated security or financial product.

� A buyer or lessee for new value of the proceeds of personal property, or of goods or a negotiable document of title, takes the proceeds, goods or document free of a security interest that is temporarily perfected immediately before the sale or lease if the security interest is not otherwise perfected at that time (unless the buyer or lessee has actual knowledge of a breach of security

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agreement when value is first given if the transaction is for personal, domestic or household purposes, or otherwise at the time of entry into the agreement).

The Amending Bill amends this provision to ensure that a person who buys or leases personal property cannot take free of a security interest that is a transitional security interest and perfected by the 24 month temporary perfection method contained in the Act.

If a person acquires personal property from another person and thereby takes the personal property, or an accession to the property, free of a secured party’s security interest under the Act, the rights of the secured party are subrogated, in relation to the property, to the rights of the transferor and any predecessor of the transferor (including the right to receive any part of the purchase price not yet paid). The transferee gets good discharge for any payment made to the transferor before receiving notice of the subrogation rights.

Priority between security interests generally (s. 55-61) General property

Generally the order of priority for enforcement of competing security interests in the same collateral is as follows:

1 a security interest perfected by control which was first perfected; then

2 a security interest perfected by control which was subsequently perfected; then

3 a security interest perfected other than by control which has the earliest priority time (see below); then

4 a security interest perfected other than by control which has a subsequent priority time (see below); then

5 an unperfected security interest which first attached to the collateral; then

6 an unperfected security interest which later attached to the collateral; and then

7 security interests in relation to which the proposed Act does not operate.

Priority Time

The “priority time” is the first to occur of:

� the registration time;

� the time the secured party or their representative first perfects the security interest by taking possession or control of the collateral; and

� the time the security interest is temporarily perfected, or otherwise perfected.

This assumes the security interest has been continuously perfected since the priority time (ie perfection has not been interrupted).

Proceeds

If a security interest in collateral attaches to proceeds of the collateral under a particular provision of the Act, then the proceeds get the benefit of the same priority, time of attachment and time of possession or control as is provided to the original collateral.

Priority of separate advances and separate obligations

A security interest provided for by a security agreement has the same priority in respect of all advances (including future advances) and the performance of all obligations, secured by the agreement.

Transfer of security interests

The transfer of a security interest does not affect the priority of the security interest.

Voluntary subordination

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A secured party may, in a security agreement or otherwise, subordinate the secured party’s security interest in collateral to any other interest in the collateral. The subordination will be effective between the parties and may even be enforced by a 3rd party if the 3rd party is a person for whose benefit the subordination was intended.

Purchase money security interests (PMSIs) (s. 62-65) PMSIs enjoy a form of “super priority” over other security interests in that they operate as an exception to the general “first in time” rule. However there are a number of qualifications and exceptions to this.

A perfected PMSI (priority interest) has priority over any other PMSI where both security interests are granted by the same grantor over the same collateral and:

� the priority interest is in inventory (or its proceeds) and is perfected by registration (and such registration identifies the security interest as a PMSI) when, for goods, the grantor obtains possession or for other classes of property, the PMSI attaches to the property.

� the priority interest is in personal property (or its proceeds) other than inventory and is perfected by registration (and such registration identifies the security interest as a PMSI) within 15 business days of the time, for goods, when the grantor obtains possession or for other classes of property, when the PMSI attaches to the inventory.

As an exception to the “super-priority” otherwise enjoyed by PMSIs, a non-PMSI granted for new value in an account as original collateral and perfected by registration has priority over a perfected PMSI granted by the same grantor in the account as proceeds of inventory, if:

� the registration time for the non-PMSI occurs before the sooner of the time the PMSI is perfected and the registration in the PMSI; or

� the holder of the non-PMSI gives notice in the required manner to the PMSI holder over whom priority is sought at the time of registration of the non-PMSI. The notice must be given at least 15 business days before the earlier of the registration time for the account and the day the non-PMSI attaches to the account.

Priority of security interests in transferred collateral (s. 66-68) The Act sets rules for priority as between a security interest granted by a transferor of collateral before transfer, and the second security interest granted by the transferee after transfer. If immediately before the transfer, the transferor granted security interest is attached and neither the transferor-granted security interest, nor the transferee-granted security interest is perfected by control, then the transferor granted security interest has priority if it was perfected immediately before the transfer and has been continuously perfected ever since.

The transferor-granted security interest also has priority if the transferred collateral is not registered with a serial number, the interest was perfected by registration before the transfer, the interest became unperfected but was later re-perfected and remains re-perfected, and a notice in the required form has been given to all other registered secured parties.

However, the transferee-granted security interest has priority if the transferee-granted security interest is perfected immediately before the transferor-granted interest is re-perfected; the transferee acquires the collateral without actual or constructive knowledge of breach of a security agreement; and the transferee-granted security interest secures performance of an advance made, or obligation incurred, before re-perfection and before notice is given to all other secured parties in respect of the transferor-granted security interest. This priority will only apply to the extent of the advance or obligation.

Priority of creditors, and purchasers of negotiable instruments, chattel paper and negotiable documents of title (s. 69-72) Creditors

The interest of a creditor who receives payment of a debt owing by a debtor through a debtor–initiated payment has priority over any security interest (perfected or unperfected) in the funds paid, the intangible source of the payment (eg bank account) and any negotiable instrument used to effect the payment, unless the creditor actually knew the payment breached the relevant security agreement.

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Negotiable instruments

The interest of a person who acquires a negotiable instrument (and takes possession or control) by consensual transaction has priority over a perfected security interest in the negotiable instrument if the person gave value for the instrument and the person acquired the interest without knowledge of the security interest. If the negotiable instrument is acquired in the ordinary course of a business, the level of knowledge is knowledge that such acquisition would breach the relevant security agreement.

Chattel paper

The interest of a person who acquires chattel paper by consensual transaction in the ordinary course of the person’s business of acquiring chattel paper for new value takes priority over:

� a perfected security interest if the person had no actual or constructive knowledge of it; and

� in any case, a security interest that has attached to proceeds of inventory as original collateral.

Negotiable document of title

The interest of a holder of a negotiable document of title has priority over a perfected security interest in the document of title if the holder gave value for the document and the person acquired the document of title without actual or constructive knowledge of the security interest. If the document of title is acquired in the ordinary course of a business, the relevant knowledge is knowledge that such acquisition would breach the relevant security agreement.

Division 6 – Priority of other interests (s. 73-77) Legal interest arising in the ordinary course of business

An interest arising under an Act, statutory instrument, rule of law or equity in the ordinary course of a business of providing goods or services generally has priority over another security interest unless the interest is acquired by the supplier with actual knowledge that the acquisition constitutes a breach of the security agreement that provides for the other security interest.

Prescribed statutory interests

Particular statutory interests can be prescribed as having priority over other security interests.

Execution creditor has priority over unperfected security interest

The interest of an execution creditor in collateral has priority over any security interest in the same collateral that is not perfected at the time the execution creditor seized the collateral, or when a court order is made in relation to the execution creditor.

Interests in ADI accounts held by the ADI

A perfected security interest held by an ADI in an ADI account with the ADI has priority over any other perfected security interest in the account other than a security interest perfected by control.

Interests in returned tangible property

A perfected security interest in tangible property that has reattached to the property after the return of that property under s. 37(1)(2) has priority over a security interest in the goods that is granted to a transferee by operation of s. 38(1).

A security interest in tangible property granted under s. 38(2) to a transferee of chattel paper has priority over the following perfected security interests:

� a perfected security interest in the goods granted by operation of s. 38(2) to the transferee of an account; or

� if the transferee takes possession of the chattel paper in the ordinary course of business of acquiring chattel paper of that kind for new value, a perfected security interest in the goods that has re-attached under s. 37(1) or that attaches when the goods come into the possession of the grantor or transferee as described in s. 37(1)(d).

A security interest that is granted by someone who acquires an interest in the property (eg buyer or lessee) has priority over a security interest that reattaches or is granted under s. 37, or is granted by

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operation of s. 38 if the priority interest attaches while in the possession of the person and if, immediately before the repossession time, the priority interest is perfected.

Transfer and assignment of rights in collateral (s. 78-81) Restriction on dealing with collateral does not affect third party transactions

Although a security agreement might restrict the grantor from dealing with its rights in the collateral, the grantor’s rights may be transferred with consent of the grantor and the transferee, or by operation of law. This does not alter any counterparty’s rights to treat such transfer as a default under the relevant agreement.

Rights of a transferee of an account or chattel paper

The rights of a transferee of an account or chattel paper are subject to the terms of the contract between the account debtor and the transferor and any defence, remedy or claim arising from the contract and any other equity, defence, remedy of claim of the account debtor against the transferor accrued before the first time when payment by an account debtor to the transferor no longer discharges the obligation of the account debtor the account debtor acquired knowledge of the transfer.

A modification of, or substitution for, the contract between the account debtor against the transferor is effective (in relation to as yet unearned payment rights) against the transferee if it is done honestly in a commercially reasonable manner without a material adverse effect on the transferee’s rights under the contract or the transferor’s ability to perform the contract.

A term in a contract between an account debtor and a transferor that imposes certain restrictions on the transfer of an account or chattel paper binds the transferor to the extent of making the transferor liable in damages for breach of a contract, but is unenforceable against third parties.

Specific Rules for Certain Security Interests (s. 82-106) Agricultural interests (s. 83-86) Meaning of security interests in crops

Generally, a security interest in crops extends to the crops while growing and afterwards when cut or separated from the soil. In making this determination it does not matter whether the crops are stored on the land where the crops were grown or on any other land or premises.

A security interest in crops does not prejudicially affect the rights of a lessor or mortgagee of land on which the crops are growing if those rights existed at the time the security interest was created and the lessor or mortgagee has not consented in writing to the creation of the security interest. Subject to this protection of the position of a lessor or mortgagee, a perfected security interest in crops is not prejudicially affected by a subsequent sale, lease or mortgage of, or other encumbrance on, the land on which the crops are growing.

Priority of crops and livestock

A perfected security interest in crops and the proceeds of the crops has priority over any other security interest granted by the same grantor in the same crops or proceeds if granted for value to enable the grantor to produce the crops where the security agreement is made while the crops are growing or not more than 6 months before they are planted.

A perfected security interest in livestock or the proceeds of livestock which has been granted for value to enable the debtor to feed or develop the livestock has priority over any other security interest (except a PMSI) granted by the same grantor in the same livestock or proceeds, but only if the livestock are either held by the grantor at the time the security agreement is made or are acquired within 6 months thereafter.

Accessions (s. 87-97) An “accession” to other goods means goods that are installed in, or affixed to, the other goods, unless both the accession and the other goods are required or permitted by regulations to be described by serial number.

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Continuation of security interests in accessions

A security interest in goods that become an accession to other goods continues in the accession. However, a person might acquire an interest in the accession free of the security interest under an extinguishment provision.

Priority of security interests in accessions

The default rule is that a security interest in goods that is attached at the time the goods become an accession has priority over a claim to the goods as an accession made by a person with an interest in the whole.

Priority in the whole – before security interest in the accession is perfected

The interest of any of the following persons has priority over a security interest over goods attached at the time the goods become an accession:

(a) a person who acquires for value an interest in the whole after the goods become an accession, but before the security interest in the accession is perfected;

(b) an assignee for value of a person with an interest in the whole at the time the goods become an accession, but before the security interest in the accession is perfected;

(c) a person with a perfected security interest in the whole who makes an advance under the security agreement relating to the security interest after the goods become an accession, but before the security interest in the accession is perfected, and only to the extent of the advance;

(d) a person with a perfected interest in the whole who acquires the right to retain the whole in satisfaction of the obligation secured after the goods become an accession but before the security interest in the accession is perfected.

Priority in the whole –security interest in accession attaches after the goods become accession

A security interest in goods that attaches after the goods become an accession is subordinate to the interest of:

(a) a person who has an interest in the other goods at the time when the goods became an accession and who: has not consented to the security interest; has not disclaimed an interest in the accession; has not entered into an agreement under which another person is entitled to remove the accession; and is otherwise entitled to prevent the grantor from removing the accession; or

(b) a person who acquires an interest in the whole after the goods become an accession, but before the security interest in the accession is perfected.

Upon exercising a right to remove an accession, a secured party must do so in a manner that causes no greater damage to the other goods, or that puts the person in possession of the whole to no greater inconvenience, than is necessarily incidental to such removal. A person other than the grantor who has an interest in the goods to which an accession has become attached is entitled to reimbursement for any damage to that person’s interest caused by removal of the accession – this does not include reimbursement for a reduction in the value caused by the absence of the accession or the need to replace the accession. The person entitled to such reimbursement is entitled to refuse permission for removal until adequate security for reimbursement is given.

A secured party entitled to remove an accession, must first give notice in the approved form of the intention to do so to the grantor and a secured party with a higher priority security interest in the accession at least 10 business days before removal. A shorter period may be agreed. Notice is not required if the secured party believes on reasonable grounds that the accession will decline substantially in value if it is not disposed of immediately after default or if the cost of expenses for retention of the accession is disproportionately large relative to its value.

A person, other than the grantor, who has an interest in the whole which is subordinate under the Act to a security interest in the accession, may retain the accession if the obligation secured by the accession is performed or the party with the security interest over the accession is paid the value of the accession (assuming the accession were removed).

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Processed and Commingled goods (s. 98-103) If goods are manufactured, processed, assembled or commingled and as a result becomes part of a product or mass so that the goods’ identity is lost in the product or mass, then:

� a security interest in the goods continues in the product or mass (subject to the operation of any extinguishment provision) ;

� the security interest in the product or mass can be perfected in the same way the security interest in the goods was perfected;

� any priority that a continuing security interest has in respect of the product or mass over a competing security interest is limited to the value of the goods on the day they became part of the product or mass;

� a perfected security interest continuing in a product or mass has priority over an unperfected security interest in the same product or mass;

� if more than one perfected security interest continues in the same product or mass, each is entitled to share in the product or mass according to the ratio that each respective obligation secured bears to the sum of obligations secured by all perfected security interests in the same product or mass. The same position applies as between unperfected security interests.

A perfected PMSI in goods that continues in the product or mass has priority over a non-PMSI that continues in the product or mass and a non-PMSI in the product or mass given by the same grantor.

Intellectual property

The Act applies to intellectual property rights in relation to goods in the same way it applies to the goods if the exercise by a secured party of rights in relation to the goods arising under a security agreement necessarily involves an exercise of the intellectual property rights and the payment or other obligation secured by the security interest is (in addition) secured by a security interest that is attached to the intellectual property rights.

A security interest in an intellectual property licence (or sub-licence) will bind every successor in title to the licensor of the intellectual property licence (or sub-licence) to the same extent as the security agreement was binding on the licensor, so long as the original licensee continues to hold the licence (or sub-licence).

Enforcement (s. 107-144) Enforcement of security interests – General Rules (s. 108-121) The Act sets out rules about enforcement of security interests. It imposes general standards of honesty and commercial reasonableness. Parties are permitted to contract out of specific provisions and where land is involved, to instead adhere to the mechanisms applicable to enforcement against interests in land.

The enforcement provisions do not apply to:

� a transfer of an account or chattel paper or any incidental security interest;

� a PPS lease that does not secure payment or performance of an obligation;

� a commercial consignment that does not secure payment or performance of an obligation; and

� a security interest in goods located outside Australia.

Certain provisions do not apply to collateral predominantly used for personal, domestic or household purposes and to perfected security interests in investment instruments and intermediated securities.

The enforcement provisions do not derogate from other rights and remedies the debtor, grantor or secured party have against each other in relation to a default by the debtor under the security agreement.

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In exercising its rights and remedies, a secured party may generally only deal with collateral to the same extent as the grantor would be entitled to deal with the collateral.

Parties to a security agreement may contract out of certain provisions of the Act, however the particular provisions continue to govern the rights and obligations of third parties. In relation to collateral not used for personal, domestic or household purposes, the parties to a security agreement may only contract out of s. 126 which is concerned with “apparent possession”.

Corporations Act

Unless the grantor is an individual, the enforcement provisions do not apply in relation to property while a person is appointed as a receiver of the property.

Relationship with Land Laws

If the same obligation is secured by a security interest in personal property and an interest in land, the secured party with highest priority (or with agreement of any higher priority secured parties) may acting reasonably, choose to proceed as if the personal property were land.

Relationship with National Credit Code

The enforcement provisions apply in relation to a security interest in collateral to which the National Credit Code applies, and the regulations may provide that a specified provision of the Part is taken to have been complied with if a corresponding provision of the Code has been complied with.

Prescribed Code provisions include those dealing with (a) the provision of certain notices to the debtor after the secured party takes possession of collateral under a mortgage or sells the collateral, and (b) the secured party deducting certain amounts from any money received from a sale of the collateral (regulation 4.1).

Enforcement of liquid assets

If a debtor defaults on an obligation secured by a security interest in liquid collateral in the form of an account, chattel paper or a negotiable instrument, then the secured party may (subject to giving notice to the grantor and higher priority secured parties):

� seize any proceeds of the collateral to which the secured party is entitled under s. 32; and/or

� the secured party may given written notice to an obligor under the collateral to discharge the secured obligation.

A person who receives such notice as an obligor must pay any amount owing to the grantor to the secured party within 5 business days of receiving the notice or of the amount becoming due and payable, whichever is later. A higher priority secured party may intervene by notice to prevent the proposed enforcement.

Seizing collateral (s. 122-127) A secured party may seize collateral if the debtor is in default under the security agreement. Seizure of the collateral does not perfect the party’s security interest in the collateral.

Where the collateral is intangible property or the secured party has perfected the security interest by possession or control, seizure is effected by notice to relevant parties which may include the grantor and if the property is a licence, the licensor or licensor’s successor.

A secured party who seizes collateral must dispose of the collateral in accordance with certain provisions (Disposal Provisions) or retain the collateral in accordance with other provisions (Retention Provisions). Any delay must be in accordance with the security agreement or otherwise be reasonable.

If collateral cannot be readily removed from the grantor’s premises or there are inadequate storage facilities for the collateral, a secured party may seize the collateral by taking apparent possession of the collateral (except where the collateral is used predominantly for personal, domestic or household purposes). It may be disposed of on the grantor’s premises without causing unnecessary cost of inconvenience.

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If collateral is seized, a higher priority secured party may by written notice require the enforcing secured party to give the higher priority secured party possession of the seized collateral, but must pay the enforcing party’s costs. The higher priority secured party is then taken to have seized the collateral.

Disposal Provisions (including by purchasing collateral) (s. 128-133) A secured party may dispose of collateral if the secured party has seized the collateral by:

� public or private sale (including sale to the secured party, if the collateral is not to be used predominantly for personal, domestic or household purposes);

� if the security agreement so provides and the collateral is not to be used predominantly for personal, domestic or household purposes, by lease; or

� if the collateral is intellectual property, by licence (subject to notice and fair trade requirements).

Disposal of a licence must be exercised subject to the terms of the licence and applicable law.

Notice

A secured party proposing to dispose of collateral must give 10 days’ notice to the grantor and any secured party with higher priority. The notice must contain information set out in s. 130(2). Notice is not required if the secured party reasonably believes it was induced by fraud to enter the security agreement; the collateral might perish before the notice period elapses; the value of the collateral will decline if it is not disposed of within one day; the expense of preserving the collateral is disproportionately large relative to its value; the collateral is foreign currency; or the collateral is to be disposed of in accordance with the operating rules of a clearing and settlement facility.

A secured party who disposes of collateral (other than by purchase) owes a duty to any person (including the debtor and grantor) who has an interest in the collateral to exercise reasonable care to obtain at least market value, or if it has no market value, the best price reasonably obtainable.

Generally, a secured party must, within 20 days of request (or such further period as is reasonable) by any other person with a security interest or the grantor, give a written statement of account in respect of the disposal of collateral. The statement of account must contain specified content. Regardless of whether a request is made, if the collateral has not been disposed of within 6 months, a written statement must be given each 6 months until it is disposed of to each other person with a security interest and the grantor.

If the collateral is disposed of, a person acquires the collateral free of the interest of the grantor, the security interest of the secured party who disposed of the collateral, and all security interests that have lower priority to that security interest.

Retaining collateral (s. 134-136) A secured party may retain collateral if the secured party has seized the collateral, subject to 10 days’ notice (to the grantor, registered secured parties, any other person known to have a security interest or to claim an interest in the collateral) and there being no objection under the objection provisions.

If, after fulfilling the notice requirements, a secured party receives no notice of objection to retention, then the secured party is entitled to take steps to have title to the collateral pass to the secured party. Once title passes, the secured party acquires the collateral free of the interest of the grantor, the security interest of the secured party to whom the title passes, and all security interests that have lower priority to that security interest. The debts or obligations secured by that secured party’s security interest are extinguished.

If a third party acquires the collateral from the secured party for new value without knowledge that the secured party has not complied with notice requirements, the third party acquires the collateral free of certain security interests.

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Objection to purchase or retention (s. 137-138) A person receiving a notice from a secured party intending to purchase or retain property may object to the purchase or retention. If this occurs, the secured party must sell or lease the collateral. The secured party may require the person to prove their interest in the collateral.

Rules applying after enforcement (s. 139-144) The Act contains rules dealing with the order of distribution of personal property or its proceeds, the transfer of title to the collateral, the redemption of collateral, or reinstatement of security agreements before disposal; and when certain enforcement notices are not required.

Any amount or proceeds of collateral received by the secured party must be applied in the following order:

1 obligations to persons holding interests other than security interests in the collateral that have a higher priority than the interests of the secured party;

2 reasonable enforcement expenses incurred in relation to the enforcement of the security interest to the extent they are secured by the security interests;

3 obligations to persons holding security interests that have higher priority;

4 obligations to the secured party that are secured by the security interest in the collateral;

5 obligations to persons holding interests or security interests in the collateral that have a lower priority (in order of their priority);

6 the grantor.

Note that the operation of this section is altered in relation to equal interests in collateral arising from commingled property and accessions to property.

Amounts paid on this basis discharge an obligation secured by an interest in the collateral, to the extent of the obligation.

Before collateral is disposed, any other person with a security interest and the grantor may redeem the collateral by paying the amounts required to discharge the obligations or by performing the obligations, secured by security interests in the collateral and any expenditures and costs incurred by the secured party. The grantor’s right to redeem has priority over any other person’s right to redeem.

At any time before a secured party disposes of or retains collateral, a person may reinstate the security agreement by:

� paying the amounts in arrears and the enforcement expenses; and

� remedying any other default.

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Personal Property Securities Register (s. 145-203) Establishment of the register (s. 145 – 148) The Act establishes a single, national Personal Property Securities Register which will replace the more than 40 registers operated by, or on behalf of, the Commonwealth, States or Territories.

It will be the definitive place records of security interests in personal property (property other than land or buildings) are held. It will be computer based, publicly accessible and updatable in real time and will primarily be accessed through the internet and B2G connections, but also will be able to be accessed by IVR, SMS, call centre and physical lodgement channels. A dedicated website with information about the register is accessible at www.ppsr.gov.au/.

Regulation 5.3: In addition, the register must contain data (if any) in relation to personal property that is subject to interests which may not be security interests, such as:

• motor vehicles that have been impounded, immobilised or forfeited as a result of use in respect of certain offences (‘hoon liens’ registration);

• personal property that is subject to, confiscated or forfeited under ‘proceeds of crime’ legislation; or

• personal property that is subject to court orders that prevent or restrict dealing in that personal property, that enforce another court order, or that order the sale or disposal of all or part of that property.

A Customer Contact Centre will be a part of the Registrar’s Office and support the operation of that office and the Register. It will handle applications, requests and queries submitted by mail, facsimile or SMS, as well as being the first point of contact for resolution of issues around accessing the Register.

Registration: application (s. 149 – 152) A person can register a security interest or amend a registered security interest by filing an application in the approved form (called a Financing Statement in the case of a new security interest and a Financing Change Statement in the case where an existing registered security interest is amended).

In each case, the required application fee must be paid and the Registrar must be satisfied the application is not frivolous or vexatious and the registration has not been prohibited by regulations. (s. 150).

Regulation 5.4: Registration is prohibited if:

• it is in relation to an impounded or immobilized motor vehicle, or personal property that is subject to ‘proceeds of crime’ legislation or that is subject to court orders that prevent or restrict dealing in that personal property, that enforce another court order, or that order the sale or disposal of all or part of that property; and

• the application for registration is made by a person other than a police commissioner, an appropriate or authorised officer under the ‘proceeds of crime’ legislation, or the person who applied for or in whose favour the order is made, whichever is applicable.

The person who applies for registration of a financing statement or financing change statement must believe on reasonable grounds that they hold or will hold such a security interest. If there are no reasonable grounds for continuing to hold the belief that the collateral secures or will secure an obligation owed by a debtor to the secured party then the registration must be amended to end its effect. (s. 151)

The Amending Bill amends this section and removes the requirement for belief on reasonable grounds that the collateral secures or will secure an obligation. The amendment is necessary for deemed security interests as such security interests do not actually secure an obligation.

A personal property security interest can be registered over property even if the property is not located in Australia or if the grantor is not located in Australia provided it has sufficient connection to Australia. (s. 152)

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Registration: contents (s. 153-162) The content of a Financing Statement is prescribed. It includes:

(a) particulars of the security party;

(b) particulars of the grantor (except for consumer property described by serial number);

(c) particulars of the collateral (including whether it is consumer property or commercial property)

(d) the serial number if required;

(e) a description of the proceeds;

(f) the end time for the registration; and

(g) an indication of whether the security interest is or will be subordinated.

(s. 153)

The register’s operating system will also record the initial registration time and the time of any amendment of the registration. A registration may include multiple secured parties or grantors.

The Registrar must provide each relevant secured party with a verification statement whenever there is a new registration, an amendment of a registration, or the removal or restoration of data registered in a registration (s. 156). Each secured party that receives a verification statement must give notice to the grantor, unless the collateral is commercial property and the grantor has waived the right to receive the notice. (s. 157 and 158)

Registration, or an amendment to registration commences when a description of the collateral becomes available for search in the register. (s. 160)

In contrast to the current system personal property may be registered as collateral before or after a security agreement is made describing the property or a security interest has attached to the property (s. 161). For financiers, this means registration can be effected before settlement (ie before attachment). Similarly collateral may be registered to reflect the transfer of a security interest or of collateral before or after the transfer. (s. 162)

Period of effectiveness of registration (s. 163-168) Registration of a security interest will end on the earliest of the end time specified in the registration, the time when the registration is amended to exclude the collateral, or when the registration is removed. (s. 163). For collateral other than consumer property or property described by serial number the end time for registration is either “no stated end time”, “25 years after the registration time”, or “25 years after the amendment time” (if the registration has been amended to change the end time).

For consumer property or property described by serial number the end time is “no later than 7 years after the registration time”, or “7 years after the amendment time” (if registration has been amended to change the end time).

Registration will be ineffective if there is a seriously misleading defect in the registration, or if there are other prescribed defects although in some cases the registration is temporarily unaffected by the defect for a specified period of time giving a secured party time to remedy the defect. (s.164, 165)

The Amending Bill inserts power to make regulations prescribing circumstances in which a registration is not seriously misleading and therefore ineffective.

If a secured party fails to pay a maintenance fee after written notice from the Registrar, the Registrar may end the effective registration of the collateral. (s. 168)

Searching the register (s. 170-174) The Act places restrictions on who can search the register, what they can search for and for what purpose. Any organisation which searches the register other than in accordance with the Act and who

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obtains personal information about an individual is deemed to have committed an act involving the interference with the privacy of an individual under the Privacy Act 1988 (s. 173)

A written search result in the appropriate form is admissible as evidence in a court or tribunal and is, in the absence of evidence to the contrary, proof of the matters stated in the search result (s. 174).

The Amending Bill inserts a new part – Part 5.5A - conditions on data access.

Amendment demands (s. 177 - 182) A person with an interest (other than a security interest) in collateral described in a registration may demand in writing that a secured party amend the registration in certain situations. If the secured party does not comply with the demand then in certain circumstances the Registrar or the Court can rule that the Registrar should make the amendment.

Judicial Proceedings (s. 204-252) Chapter 6 deals with judicial proceedings in a court with respect to matters under the Act.

The key features of this Chapter are:

� The Federal Court, the Federal Magistrates Court, courts of States and Territories and the Family Court have jurisdiction to hear matters under the Act (s. 207).

� The Registrar may intervene in any matter relating to the Act on behalf of the Commonwealth (s. 218).

� The Registrar may commence an action under the Act on behalf of a person although they require that persons consent if they are not a constitutional corporation (s. 219).

� On application by the Registrar the Federal Court of Australia can order a person to pay a pecuniary penalty for a serious breach of a civil penalty provision in the Act (s. 222). Contravention of a civil penalty provision is not an offence (s. 223).

Operation of laws (s. 232-252) Chapter 7 of the Act deals with how the Act will interact with other Australian and International laws.

Part 7.2 deals with the interaction of Australian and foreign laws relating to security interests. The regime is based on international conflict of laws rules. The general principles are as follows:

� the validity of a security interest in goods would be governed by the law of the location in which the goods are located when the security interest first attaches to the goods;

� the perfection (and effect of perfection or non-perfection) of a security interest in goods is governed by the law of the location in which the goods are located at the time the issue arises;

� a security interests in an intangible would be governed by the law of the location in which the grantor is located; and

� a security interest in financial property would be governed by the law of the location in which the grantor is located (EM 7.7).

These principles are modified in particular situations set out in the Act.

Part 7.3 deals with the constitutional operation of the Act. The regime to be established under the Act will be supported by a referral of legislative power from the States. New South Wales is the first jurisdiction to refer power, having passed its PPS Referral Act on 17 June 2009. All states except Western Australia have deferred powers.

Part 7.4 deals with the interaction of the Act with other Commonwealth laws and with State and Territory laws. The Act is not intended to exclude or limit the operation of any other law if that other law is capable of operating concurrently with the Act. If there is an inconsistency between the Act and another law, regulations may be made to resolve the inconsistency. However the Act prevails over

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other laws in relation to certain requirements relating to the registration and form of security interests, and their assignment, attachment and perfection.

Vesting of certain unperfected security interests in the grantor (s. 267 & 267A) An unperfected security interest will vest in the grantor if that security interest is unperfected before certain prescribed times if one of the following events occurs to the grantor:

(a) an order is made, or a resolution is passed, for the winding up of a company;

(b) an administrator of a company is appointed;

(c) a company or a body corporate executes a deed of company arrangement;

(d) a sequestration order is made against a person under the Bankruptcy Act 1966;

(e) a person becomes a bankrupt.

The vesting is effective immediately before the above event occurs or when it attaches to the collateral, if the security agreement was made before the event and the security interest is unattached, not perfectible by registration and not perfected by possession or control (or temporarily perfected under the Act) at the time of the event. The vesting does not affect title of a person who subsequently acquires personal property for new value from a security party or a receiver where the person has no knowledge of relevant information about the winding up of the company, appointment of the administrator, or other relevant event.

These provisions in the Act also apply to transactions where the secured party owns the collateral, for example, under a lease or hire purchase arrangement. However, they do not apply to the following kinds of security interests:

(a) the interest of a senior creditor in an account under a subordination arrangement under which the junior creditor holds proceeds received from the obligors on trust for the senior creditor (s. 268(2));

(b) a short term PPS lease (that is a lease of goods described by serial number, that does not secure the payment or performance of an obligation and lasts for a term of 90 days or more and less than 1 year);

(c) a transfer of an account or chattel paper or a commercial assignment, if the transaction does not secure the payment or performance of an obligation; or

(d) a security interest for which perfection (and its effect) is governed by the law of a foreign jurisdiction.

A lessor or consignor whose interest vests in the grantor under s. 267 will be able to recover an amount of compensation and will continue to hold title in the property despite s. 267 if:

� the lease is for a term of more than one year, or the consignment is a commercial consignment; and

� the lease or consignment does not secure payment or performance of an obligation.

Exercise and discharge of rights, duties and obligations (s. 270-273) If there is a breach of duty or failure to perform an obligation under the Act, the person to whom the duty or obligation is owed has a right to recover damages for any loss or damage that was reasonably foreseeable. (s. 271)

Section 272 provides protection to the government, Registrar, and associated persons for acts done in accordance with the Act.

Provision of information by secured parties (s. 274-283)

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The Act requires a secured party to provide certain information relating to a security interest to certain interested persons on request. The secured party does not have to respond in certain situations, for example if the information has already been provided, or if a confidentiality agreement exists. However, some of these exceptions do not apply if the debtor is in default under the security agreement or in other specified circumstances. A person must respond to a request within 10 business days, or a longer period of time if the court orders.

A person who makes an information request and who has not received a satisfactory response from the secured party can apply to the court for an order requiring the secured party to respond to the request or to provide a complete and correct response, within a specified period. If a person fails to comply with a court order, the court may (on application of the person who made the information request):

� make an order extinguishing the security interest to which the request relates (including an order to amend the registration of the collateral), and

� make such other orders as the court thinks necessary to ensure compliance with the request.

A person who responds to an information request is estopped from denying information provided in response to a request where the person who made the request (or any other person who can reasonably be expected to rely on the response) relies on the response.

Notices and Timing (s. 284-294) The Act sets out rules for giving notice under the Act (other than notices or other documents served in litigation or a procedure specified in a security agreement). Each notice to a secured party must be in writing and include the identifier specified in the registration of the security interest (if any) in a manner (if any) approved by the Registrar. Notice by fax and email is recognised.

A court has power, if it is just and equitable, to extend the number of days allowed for a party to comply with certain provisions of the act including those relating to perfection of the security interest and when a defect makes registration ineffective.

In considering whether to extend the period, the court must take into account the following:

(a) whether the need to extend the period arises as a result of an accident, inadvertence or some other sufficient cause;

(b) whether extending the period would prejudice the position of any other secured parties or other creditors;

(c) whether any person has acted, or not acted, in reliance on the period having ended.

Onus of proof and related entities (s. 295-300) Section 296 sets out the facts for which the onus of proof lies with the person asserting those facts in a proceeding in Australia under the Act.

The Act sets out certain statutory presumptions concerning knowledge that arise when a person acquires an interest in personal property from a member of the same household, from an associated entity or from a company of which the person is a director or officer.

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Transitional Provisions (s. 304-343) Commencement of the Act (s. 306, 310 and 315)) Most of the provisions of the Act will start to apply at the registration commencement time (s. 310) (which is 25 months after the date the Act receives Royal Assent or an earlier time determined by the minister s. 306(2)). This means the registration commencement date would be in February 2012. A person will only be able to apply to the Registrar for registration of a financing statement after the registration commencement time (s. 315).

Security Interests already in force prior to commencement of the Act (s. 319-324) Security interests that are already registered on a Commonwealth, State or Territory register will generally be recorded on the new register (Division 6). Security Interests that are moved across from an existing register will be deemed to have been registered on the register before the registration commencement time (s. 333(2)). Multiple securities on the same collateral that are moved across will maintain the priority they had prior to being moved to the new register (s. 323).

Among other things, the Registrar must determine the end time for a security that is moved across from an existing register based on when the security interest would have ended under its previous register (s. 333(3) & (4)).

A security interest that was created prior to the registration commencement date that previously did not require registration or is not recorded on the new register will be deemed to be effective for 24 months from the registration commencement time (s. 322). However, after this time it will be deemed to be an unperfected security interest for the purposes of determining priority if the grantor is insolvent or bankrupt (s. 324).

If the grantor is not insolvent or bankrupt then the security interest will have the priority it would have had prior to the Act commencing (s. 323). The new rules only apply to a bankruptcy or insolvency scenario as a result of the Commonwealth being limited by the Constitution to only acquiring property on just terms (Constitution Section 51(xxxi)). The Commonwealth is concerned that altering the priority of parties outside a bankruptcy insolvency scenario may trigger the operation of this section of the Constitution.

The provisions of s. 320 to 325 protecting priority of transitional security interests and granting temporary perfection will not apply if the transactional security interest was registrable on a transitional register that conferred priority but was not registered (regulation 9.2).

The Amending Bill introduces a new priority rule (s. 322A) dealing with priority between a transitional security interest and a security interest perfected by control. It is to ensure that the transitional security interest has the benefit of the 24 month protection, despite s. 57(1).

Charges and Floating Charges Fixed charges and floating charges would become security interests under the Act.

The Act will maintain the effect of the existing provisions so that parties would not be able to avoid existing provisions governing fixed and floating charges.

The reference to a charge will apply only to the extent that the charge has attached to personal property owned by the grantor. It will not apply to property owned by the secured party such as the collateral in a retention of title arrangement, lease or consignment.

A reference to a floating charge will be taken to be a reference to a security interest that has attached to a circulating asset.

There would be two classes of circulating assets:

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� where a secured party has given the grantor express or implied authority for any transfer of the personal property to be made, in the ordinary course of the grantor’s business, free of the security interest; and

� current assets inventory, proceeds of inventory, currency, negotiable instruments.

The definition of circulating asset confirms the existing case law on floating charges, which provides that in determining whether a floating charge exists over personal property consideration must be given to both the express terms of the agreement between the parties as well as to the actual level of control exerted by the secured party. The provision takes into account current case law on the nature of floating charges so that, in determining whether a charge is a floating charge, consideration would be given to the intention of the parties as demonstrated by both their contract and their practice.

The Amending Bill provides that if a grantor grants a security interest provided for by a transfer of account or chattel paper, the account or chattel paper is not a circulating asset in relation to the security interest. This amendment is made to ensure that existing priorities following a company insolvency continue, so that equitable assignments are not subject to the interests of preferential creditors.

Consequential amendments Upon the Act commencing, much of the existing legislation dealing with security over personal property becomes redundant. To address this, the government has introduced the Personal Property Securities (Consequential Amendments) Act 2009 (Cth) and the Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth) (Amendments Acts), which are intended to repeal existing provisions which become redundant and clarify the interpretation of provisions which will operate concurrently with the new regime.

These amendments will affect a wide variety of commonwealth legislation, including the Corporations Act, the Bankruptcy Act and certain intellectual property legislation.

Finally, the Amendments Acts also make a number of minor amendments to the Act itself to address issues raised by the public.

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