Australia: The effect of the Personal Property Securities Act 2009 (Cth) on the construction industry

Last Updated: 7 May 2012
Article by Julian Lane and Laura Steele

Most Read Contributor in Australia, September 2016

What is the PPSA?

The Personal Property Securities Act 2009 (the PPSA) commenced on 30 January 2012 and established a new national regime and register for security interests in personal property.

Everyone involved with the construction industry needs to be aware of the new regime and register, because a failure to comply with its requirements may result in the loss of a security interest in personal property.

Overview of the PPSA

The PPSA requires the registration of security interests over personal property to ensure the secured party's priority against other creditors is maintained. As is shown below, the requirement for the registration of security interests also applies to the owners of the relevant property, who can no longer simply rely upon their ownership of the relevant property to protect their interests.

What is personal property?

The Act applies to nearly all personal property, which includes all tangible and intangible property excluding land and fixtures to the land.

What is a security interest?

The PPSA defines a security interest as an interest in personal property that in substance secures payment, or the performance of an obligation, by another party.

Further, the PPSA also deems as security interests some arrangements that were not previously considered to involve security. For example, the PPSA now deems as a security interest a lessor's interest in leased goods, and the interest of a supplier of goods supplied under consignment or retention of title arrangement is now also considered a security interest and must be registered.

Generally speaking, if a party allows another party to take possession of personal property which it either owns, or in which it maintains a right to take re-possession of in certain circumstances, it runs the risk of losing its interest in the property if the other party with possession either:

  1. attempts to grant a later security interest in that property; or
  2. becomes insolvent and an administrator, receiver or liquidator is appointed to it.


Another key reform in the PPSA is the introduction of the concept of a Purchase Money Security Interests (PMSI). A PMSI can be obtained by a secured party when they enable the grantor to acquire particular property, such as where a secured party provides funds for the acquisition of property. A PMSI also includes retention of title arrangements, hire purchase arrangements, lease finance arrangements and the interests of a lessor or bailor.

A PMSI grants the secured party a "super priority" over other perfected interests, even if such interests were registered before hand.

The concept of a PMSI is particularly relevant to the construction industry in relation to equipment hire and temporary works which may constitute a PPS Lease (which is a deemed security interest) if it continues for an indefinite term or for more than 1 year.

What do you need to do?

Any new security interest created from 30 January 2012 needs to be recorded in the right format and registered on the PPS Register within the following time limits:

  1. for a PMSI over inventory, before the goods are delivered;
  2. for all other PMSIs, within 15 business days of the grantor taking possession of the relevant property; and
  3. for all other security interests, within 20 business days of the grantor taking possession of the relevant property.

However, a security interest's priority is also by the time of registration, so registration should be completed as quickly as possible.

Consideration should also be given to registering security interests which arose prior to 30 January 2012 to ensure that they are also protected.

Consequences of not registering

A failure to register a security interest may result in the secured party:

  1. losing its priority against all other registered holders of security interests over the relevant property; and/or
  2. if the grantor becomes insolvent, losing its security interest entirely and being treated as an unsecured creditor in the liquidation of the company.

PPSA and the construction industry

Retention of title clauses

A retention of title clause provides that ownership of goods does not pass to the purchaser until the price has been paid. Suppliers of off-site materials (e.g. steel mills or brick works) who have retention of title clauses in their contracts have a securable interest in the relevant property until they are paid. This interest must be registered under the Act as a PMSI prior to delivery to achieve protection.

Lease of equipment

Owners of leased equipment could previously rely on their legal title for protection. If the lease fails within the definition of a PPS Lease under the PPSA, then the owner's interest in the leased goods will be a deemed security interest. Therefore the leased goods will be at risk if the owner does not register its interest.

Principal's rights to "step in"

Many construction contracts allow, in the event of default by a contractor, for a principal to take over the work and use the contractor's plant and equipment.

A principal's entitlement to take over the works and use plant and equipment falls within the definition of a security interest under the PPSA, because it secures performance of the contractor's obligations. Therefore these interests must be registered to ensure priority.

Your business

The best approach for addressing these issues will differ from client to client.

Holding Redlich can assist our clients to:

  • develop a program for identifying potential security interests;
  • draft agreements appropriately in an effort to protect their rights;
  • arrange and undertake the registration of their security interests; and
  • enforce their security interests.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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