How the PPSR protects purchasers of personal property

What is the PPSR?

The Personal Property Securities Register (PPSR) is a national, electronic register of security interests in personal property.

The PPSR was established on 30 January 2012 with the aim of protecting buyers of personal property where an existing security interest exists in the purchased property and where they were not aware of that interest prior to purchase.

Prior to the introduction of the PPSR if a purchaser bought personal property, as opposed to real property such as land, then any security interest held by someone in that property would have survived such a sale even if the purchaser had no idea a security interest in the property already existed.

A practical example

Prior to 30 January 2012 if you purchased a motor vehicle privately which already had finance owing on it you may have found that despite having paid a large sum of money for the vehicle, your interest came second to an existing interest held by the entity or individual who had previously provided finance with the car being security for that loan. This was the case even if you paid a full and fair price for the vehicle and had not been informed by the seller that money was still owed on the vehicle at the time of purchase.

Following the introduction of the PPSR if the party with the security interest in the vehicle, such as a financing bank, has not registered their interest in the vehicle then your interest after purchase will have priority over that of the bank.

The overall effect of the PPSR is that, as a general rule, if the bank has not registered their interest in the vehicle, any security interest in the car held by the bank will be extinguished at the time of your purchase.

Personal property exempt from registration on the PPSR

Certain specified categories of personal property may be bought or leased free of a security interest if the property is not listed on the PPSR provided certain conditions exist. These categories of personal property are discussed below.

Property with serial numbers

Motor vehicles along with a range of other property that commonly have serial numbers such as watercraft (boats), aircraft, registered trademarks and patents, designs and even the rights of plant breeders need to be registered on the PPSR in order to ensure that personal security in that property is protected.

If a purchaser searches the PPSR and finds that these types of serial numbered goods are not registered then the purchaser will take ownership of the goods free of any prior security interests.

It is important to note that any search of the PPSR must be done immediately prior to the purchase of the serial numbered property being completed, or in the case of a motor vehicle, no earlier than the day before the purchase is completed.

There are a number of exceptions to this rule including where:

• A purchaser holds the property (such as the motor vehicle or boat) after the purchase as part of their business inventory, or on behalf of someone else as part of that purchaser’s inventory (for example, a car yard that purchases a motor vehicle to include as part of the stock inventory in its sale yard); or
• The purchaser was a party to the original transaction which created the security interest (and therefore was well aware of the existing security interest prior to the purchase); or
• The seller is a licensed motor vehicle dealer in which case it is not necessary for a purchaser to search the PPSR prior to completing their purchase.

Property sold in the ordinary course of a seller’s business

When a purchaser buys personal property or goods ordinarily sold as part of a seller’s business it is also not necessary to search the PPSR prior to purchase. After the sale the seller remains liable for any undisclosed security interest they have already granted to another party.

Again, an exception to this rule will apply if the purchaser goes on to hold the goods purchased as inventory after the sale either for themselves or on behalf of some else or where the purchaser was a party to the transaction that created the prior security interest.

Personal, domestic or household property

There is an assumption that a purchaser who buys personal, domestic or household goods does so free of any security interest provided that the new market value of the goods does not exceed $5,000 and the goods have been purchased predominantly for personal, domestic or household use.

This exception does not apply if the goods may or must be described by a serial number or it can be shown that the purchaser was aware of the pre-existing security interest prior to purchase.

Additional exemptions

Currency including foreign currency can be purchased free of any security interest. In addition, a purchaser of any investment instrument (for example shares) will acquire the property free of any security interest provided it is purchased on a prescribed financial market such as the Australian Stock Exchange.

In the case of share purchases the value of any purchase must be agreed between the buyer and seller and the purchaser cannot have any prior knowledge of any other security interest in the investment interest of intermediated security.

Certain other exceptions apply to purchases of unperfected security interests and temporarily perfected security interests. As the rules around these exceptions can be quite complex we recommend you seek legal advice prior to entering into any purchase of this nature.

The PPSR can be a valuable tool for both purchasers as well as sellers. Our experienced lawyers can advise you in detail as to how you can use the PPSR to protect yourself both as a seller and as a purchaser.

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