The Personal Property Securities Act 2009 (PPSA)
commenced operation on 30 January 2012. It has introduced a number
of new considerations for vendors and purchasers of
The PPSA provides a national system of registration for
'security interests' in personal property (which does not
include land). It also provides default rules for determining
priority between competing security interests in the same
The concept of a 'security interest' is very broad and
generally encompasses any transaction that, in substance, secures
payment of money or performance of an obligation. Interest holders
must 'perfect' their security interest in order to obtain
protection under the PPSA. 'Perfection' is achieved by
registration of the interest on the new national PPS register, or
by the interest holder obtaining possession or control of the
Before entering into a contract for the purchase of a business,
purchasers should include the following in their usual due
conducting a search of the PPS register in respect of assets
included in the sale; and
enquiring of the vendor if any third party is in possession or
control ofany assets of the vendor (which amounts to
'perfection' without need for registration).
Purchasers should also consider negotiating appropriate
warranties from the vendor for inclusion in the contract, to the
effect that no third party has an interest in any assets and that
any registered interests will be discharged.
Vendors should ensure that they are aware of any security
interests registered over property owned by the business, so as to
enable them to: answer enquiries by prospective purchasers,
negotiate the terms of the contract for sale, and arrange for the
discharge of the security interests at completion of the sale.
Security holders should consider that they bear the
responsibility for 'perfecting' a security interest. The
new rules in the PPSA will generally work in favour of the
purchaser of a business, as the purchaser will take the assets of
the business free of any security interest which the interest
holder failed to 'perfect'.
In summary, vendors, purchasers and security holders all need to
be aware of the effect of the PPSA on their interests during the
course of sale or purchase of a business, particularly during the
preliminary stage of due diligence investigations.
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