Priority rules
Priority rules under the PPS Act
The PPS Act introduces a radical new regime for creating, recording, registering and enforcing security interests in Australia.
A key change under the PPS Act is the introduction of new rules for determining the priority of competing security interests in personal property.
Priority rules
Priority between competing security interests (including a "security interest" which is ownership of the personal property) is generally determined according to the time of attachment and perfection.
The default rule is that:
- a perfected security interest has priority over an unperfected security interest;
- priority between unperfected security interests is determined by the time of attachment; and
- priority between perfected security interests is determined by the time of perfection.
In addition to this default rule, there are special rules in relation to specific assets and types of security interest.
Attachment
For a security interest to be enforceable it must "attach" to the relevant property.
A security interest attaches to personal property when the secured party gives consideration (eg pays money or does something) in return for the security interest.
Perfection
"Perfection" is the second step in securing the priority of a security interest.
A security interest is perfected when:
- it is registered on the Personal Property Securities Register;
- the secured party has possession of the personal property (in which case registration is not required); or
- for specific types of personal property such as shares, bank accounts and (interestingly) satellites and other space objects, the secured party "controls" the personal property.
If you would like further information about priority of security interests, attachment, perfection and control, please contact a member of the Maddocks Personal Property Securities Team.