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The Personal Property Securities Act & motor vehicles

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What is the PPSA?

In October 2011, the laws in relation to security interests will change dramatically. The PPSA will impact most Australian businesses, irrespective of their size or sector. With limited exclusions (interests in land, fixtures and water rights), the PPSA will apply to all security interests over tangible and intangible personal property – including motor vehicles.

What is a security interest?

The PPSA defines a security interest as “any interest or right in personal property provided for by a transaction that in substance secures payment or performance of an obligation”. This includes a wide range of transactions including fixed and floating charges, chattel mortgages, retention of title agreements, hire purchase agreements, consignments, lease of goods and assignments.

Why is the PPSA so important?

Where a secured party (the financier or creditor) perfects its security interest in the personal property provided to the grantor (the borrower or debtor) on the online PPS Register (PPSR), a security interest will generally be enforceable against a third party.

If the secured party does not register its interest on the PPSR and the grantor becomes insolvent, then the secured party stands to lose its security, as the liquidator may seize the asset as part of the grantor’s asset pool. In this scenario the secured party, at best, will stand as an unsecured creditor.

Wide definition of motor vehicles

Under the PPS Regulations, the definition of “motor vehicle” is very wide and extends beyond cars, trucks and motor-cycles. Vehicles are defined as property that is “capable of a speed of at least 10 km/h, have one or more motors that have a total power greater than 200 W, and have either a vehicle identification number, a chassis number or a manufacturer’s number. However, the vehicle must not run on rails, tram lines or other fixed paths.” The definition specifically excludes ride-on mowers and motorised wheelchairs.

The definition of vehicles also includes property which is capable, when being towed by or attached to a motor vehicle, of travelling at a speed greater than 10 km/h, and has either a vehicle identification number, a chassis number or a manufacturer’s number. This means that equipment such as agricultural equipment and mining equipment will fall within the definition.

The breadth of the definition of “motor vehicle” is creating much uncertainty and concern and it appears likely that the Australian Attorney-General will introduce legislation in late 2011 to amend the definition.

The importance of serial numbers: special rules for motor vehicles

The PPSR requires that security interests in motor vehicles must be described by using the motor vehicle’s unique serial number.

Failing to register a security interest using the unique serial number may have serious consequences. The buyer (or lessee) of the vehicle will take the vehicle free of the earlier created security interest if a search of the PPSR (at a specified time before the sale or lease) would not have disclosed the security interest. Referred to colloquially as the “day and a half” rule, the timing qualifications are very important when searching the PPSA.


XBank provides financing to Mr A’s farm business. Mr A acquires a tractor using the XBank financing and the tractor meets the definition of “motor vehicle”. XBank registers its security interest on the PPSR to cover the tractor and the other property.

Mr A later decides to sell the tractor to Mr B. On the day prior to the sale of the tractor, Mr B searches the PPSR (using the serial number) for any registered security interest over the tractor. The search fails to disclose XBank’s registration against the tractor as XBank has not registered the security interest using the tractor’s serial number.

Relying on this PPSR search information showing no security interest in the tractor, Mr B will acquire the tractor free of XBank’s security interest, provided that at any time since the start of the day prior to the sale, there was no registration of XBank’s security interest in the tractor by reference to the tractor’s serial number.

Migration of existing registrations

The kinds of property currently covered in the definition of “motor vehicle” are diverse enough to encompass the different definitions in existing state legislation relating to recording encumbrances against motor vehicles. This allows current registered interests (for example, those on the Register of Encumbered Vehicles) to be migrated to the PPSR.  This migration of existing security interests will occur just prior to the PPSA launch.

If you have an existing security interest in a motor vehicle registered on a state-based register, we recommend you check the current registered details now, particularly in relation to the serial number. Migrated security interests that are defective due to invalid serial numbers may be problematic after the PPSA launch.

Preparing for the PPSA

We recommend every business turn its mind to preparing for the PPSA as soon as possible, irrespective of your type of business,. The new system is transformational and complex. It requires an understanding of how the PPSA will impact a company’s business transactions, including financing, selling and other such arrangements.

MST is a member of the Attorney General’s PPSA Legal Special Interest Group.

For further assistance please contact David Boyall or Susan Reece Jones in our Corporate Advisory team.

Send an email to David and Susan