Personal Property Securities Bill

LegalTalk - February 2009

Key concepts - attachment and perfection

In this article, we continue our series of updates monitoring developments in the area of Personal Property Securities reform. In this edition we look at two central concepts to the reform regime, namely attachment and perfection.

Attachment

In general terms, the Personal Property Securities Bill 2008 Exposure Draft (Bill) provides that attachment, which is a pre-requisite for the successful creation of an enforceable security interest in respect of personal property, occurs when:
  • a person (referred to in the Bill as the grantor) has an interest, or power to transfer rights in the interest, in personal property,
  • the person who holds a security interest (referred to as the secured party) has given value (defined as consideration that is sufficient to support a contract); or
  • the grantor does an act by which the security interest in the interest (or right) in the property is created, arises or is provided for. Such an act may include the grantor signing a security agreement which describes the collateral or property secured (collateral).
While a security interest will attach once the above requirements are satisfied, the parties to a security agreement may, in that agreement, agree to postpone attachment to a later time.

Under the Bill, once a security interest has attached, the grantor's rights in the collateral are subject to the secured party's rights in the collateral and the security interest may be enforced against the grantor by the secured party.

Perfection

In addition to establishing the principles of attachment, the Bill also provides mechanisms for secured parties to effectively give notice to the public of their security interests - more generally known as 'perfection'. Under the Bill, a secured party may perfect its interest by either:
  • taking possession of the collateral (other than possession as a result of seizure or repossession),
  • registering it's interest in the collateral on the Personal Property Securities Register (PPSR),
  • temporarily perfecting the security interest in accordance with the temporary perfection provisions under the Bill, or
  • taking control of the collateral where the collateral is 'controllable property' which includes (but is not limited to) an investment instrument (including shares, stocks, bonds and derivatives) or an ADI account (being an account held with an authorised deposit taking institution, such as a bank). Although controllable property may be perfected other than by control, only controllable property may perfected by control.
While attachment is necessary to complete the process of perfection, a security interest need not attach prior to perfection. That is, the Bill provides that a security interest may be perfected regardless of the order in which attachment and perfection occur.

Conclusion

Attachment and perfection are central to the creation or establishment and notification of a security interest. In summary:
  • attachment is a prerequisite for the creation of a security interest which is enforceable against a grantor, and
  • perfection is a prerequisite for notifying the public of that security interest.
Once the principles of attachment and perfection have been established, the issue of priority among competing security interests may be addressed.

A revised exposure draft of the Bill and related commentary were released in late 2008. The latest timeline anticipates the Bill to become law in or about May 2010.

The next piece in our series regarding Personal Property Securities reform will cover the principle of priority under the Bill.