Although the perfection of security interests under the Personal Property Securities Act (PPSA) is not mandatory, the consequences of failing to perfect or correctly perfecting can be serious and may subject the secured party to loss of priority, loss of security upon the insolvency of a grantor, or increased risk of defeat by third party buyers and lessees.
As a general reminder to secured parties, senior associate Grant Schulz shares some practical tips when registering a PPSA security interest:
- Generally, you should always look to perfect your security interest as soon as possible, as the timing of perfection can affect priority. The sooner it is perfected the better.
- Always consider whether a security interest qualifies as a ‘purchase money security interest’ (PMSI), noting that registration itself is not enough to achieve PMSI priority.
- You should not claim a PMSI if you do not have one as your registration will be defective. If you do consider that you have a PMSI, it is always best practice to make both a PMSI and non-PMSI registration.
- When registering a PMSI, the timing requirements for the registration of a PMSI are—
- where the collateral is inventory in the hands of the grantor, before the grantor obtains possession of the collateral
- where the collateral is not inventory in the hands of the grantor, within 15 business days of the grantor obtaining possession of the collateral.
- Other registrations of a security interest from a grantor governed by the Corporations Act must occur within 20 business days of the date the grantor signs the security agreement.
- Consider registering your security interest in the broader ‘all present and after acquired property, with exceptions’ class to ensure adequate coverage where there may be a large number of possible collateral classes, and to allow for releases of certain assets at a later date without having to make changes or amendments to the registration.
- If serial numbered goods are involved (ie for motor vehicles, aircraft, watercraft, etc), separate registrations are likely to be required to be made in respect of those serial numbered goods as failure to register by serial number (or registering an incorrect serial number) may lead to the registration being defective.
- When conducting due diligence, ensure you conduct PPSR searches and request any release which may be necessary early on, and update your searches at the time of closing to ensure no additional registrations have been made which may need to be released or amended.
- Secured parties have the ability to contractually override PPSA priority provisions through priority or intercreditor arrangements or otherwise.
In summary, always be mindful of the broad application of the PPSA, remember to register early and with care and, if you are unsure about whether you have a security interest or how you should register, contact a member of our banking and finance team to discuss.