The Personal Property Securities Act 2009: Putting the Old Rule of Thumb to Bed

This essay discusses the Personal Property Securities Act 2009 (PPSA) and how it has replaced the old rule of thumb of taking a hostage in case of debtor default. It covers the pre-PPSA scenario, implications of PPSA, and the Hamersley v Forge case. The essay also explains concepts such as personal property, security interest, attachment, collateral, and perfect interest. The PPSA has brought transparency to business and clarified personal property laws, but has also brought complications for small traders and businesses.

ESSAY

Table of Contents
THE PERSONAL PROPERTY SECURITY ACT 2009................................................................3
Introduction..................................................................................................................................3
Pre-PPSA.....................................................................................................................................3
Implication of PPSA....................................................................................................................4
Conclusion...................................................................................................................................7
REFERENCES................................................................................................................................8

THE PERSONAL PROPERTY SECURITY ACT 2009
Introduction
‘The Personal Property Securities Act 2009 (PPSA), is a national legislation that regulates
personal property security. It was brought into law in 2010 year.1 This act has put thumb rule of
hostage of property to bed. Before PPSA property transaction was performed through Australian
Pledge Agreement mode, Leasing property Act, and Transfer of Land Act 1958 that created
various issues because of which reforming of personal property law became important and this
law was brought into force. This essay will help in introducing PPSA act, hostage of property
scenario before Personal Property Securities Act 2009, and implications of PPSA Act.
Pre-PPSA
Before Personal Property Securities Act 2009 came into legislation creditors had right of
hostage especially in case of default performance by debtor in agreement. This resulted in
development of various issues, for example: losing property interest or transferring property
without the existence of legal rights and laws. This means that if there is presence of any kind of
fault in terms of loan amount non-payment terms and conditions then such kind of situation can
lead to hostage of property.
Before Personal Property Securities Act 2009 chances of unlawful transfer despite of the
fact that debtor was not in position of holding an interest in the property2. Similar situation
occurred in case of C&F Nominees Mortgage Securities Ltd V Karbotli & Ors [2020] under
which if any mistakes in the context of mortgage persist the loss of property and occurrence of
fraud occurs3.
Before- PPSA there was a trend of trust receipt, pledge, transfer of title, assignment,
consignment, lease and various other mode. On the basis of these acts of property transfer and
related transactions were performed. Because before the introduction of PPSA transactions of
1 Explanatory Memorandum, Personal Property Security Bill 2009 (Cth) 10.
2 Brown, David. "Australia's Corporate Rescue Laws: Boldly Going Aboard the Enterprise Mission?.
(2019)" First published in Insolv. Int 32(3): 101-108.
3 A mortgagee is required to take reasonable steps to verify the identity of a mortgagor (2020) <
https://lplc.com.au/resources/lij-article/establishing-identity>

property was performed through the mode of Australian Pledge Agreement, Leasing property
Act, Transfer of Land Act 1958.
Earlier it was a thumb rule that the creditor will take hostage or right against the personal
property in case of any default being made by debtor in the context of pledge. Main reason
because of which this thumb rule was followed was due to lack of adequate laws and regulations
on the basis of which governing of property transfer could have been done.
Implication of PPSA
In accordance with the PPSA Act 2009, many new regulations and rules with regard to
the property come into effect 4.
Personal property:
It refers to any tangible or intangible property other than land or any other right, license,
entitlement, authority that was declared by law as not to be treated as personal property5. This
means if mortgage is being given on real property then PPSA will not apply.
Hostage:
It is a piece of property that is held to protect the interest of debtors. This means that the
interest over the property of the creditor are taken over by debtor in case of non-repayment of
amount or breach of agreement.
Security interest:
As per Personal property security act 2009, security interest is an interest over personal
property which is provided for securing payment or performance of obligation6.
Paul, 2019 has politely explained that if the concerned parties are using traditional mode
including mortgage, lease or pledge, the uniform rule of PPSA will be applied7. This means that
4 Loxton, Diccon, Sheelagh McCracken, and Andrew Boxall. "PPSA models: A minimalist approach."
(2018) Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia 32.1 : 3-31.
5 Rasheed, Ayesha. "'Personal'Property: Fourth Amendment Protection for Genetic Information." (2021)
23(3) University of Pennsylvania Journal of Constitutional Law 547.
6 PERSONAL PROPERTY SECURITIES ACT 2009: OVERVIEW AND IMPLICATIONS FOR
COMMODITIES TRADING (2021) <https://www.hfw.com/Personal-Property-Securities-Act-2009>
7 Armit, Paul. "Legal update: Enforcement of security interests by insiders." (2019) 31(4) Australian
Restructuring Insolvency & Turnaround Association Journal 32-35.

old rule of pledge or lease are replaced by provisions and security interest concept of the PPSA
act.
This act regulates the creation and registration of security interest for personal property.
As per this act a single national legislation will be applied for security interest regulations8. As
per PPSA, security interest is effective only when these conditions are met:
Attachment to collateral:
This act is effective only if it is attached to collateral and it will be attached to collateral if the
grantor has right in collateral9. This means it is mandatory for grantor to hold the right in
collateral or it can also be applicable if grantor make transferred it to secured party.
Concept of Perfect interest:
PPSA act describes perfected interest as a kind of interest which makes it continuously
perfected. Due to this, reason perfect interest is always kept on priority over un-perfected
interest.
Perfection will only occur when security interest is attached to collateral or any steps that is
needed to make the security interest effective against third party have been taken10. Thus, with
the implication of these regulations of the PPSA old thumb rule is changed and evacuated.
Concept of attachment, collateral:
Along with security interest, various other concepts including attachment, collateral and
various other come into force with the introduction of PPSA Act11.
For creation of security existence of attachment is required to be followed up by
perfection. Here, attachment will occur when value is being given, a right of debtor exists in the
collateral and when it will be enforceable against the third party. In certain cases, possession can
be treated as higher form of perfection. Introduction of PPSA act, registration had become much
easier and all the personal property and charges need to be registered only in PPSA. Thus with
these new concepts the old rule related with hostage was put to bed and the transaction related
with property performed under the compliance of PPSA Act and its regulations.
8 Personal Property Securities Act 2009 (2021) <https://www.legislation.gov.au/Details/C2014C00273>
9 Personal Property Securities Act 2009 (2021) <https://www.legislation.gov.au/Details/C2014C00273>
10 Sheehan, Duncan. (2017)The principles of personal property law. Bloomsbury Publishing.
11 L Widdup, “The PPSA and the General Law: How Do They Work Together?” (2019) 46(4) Brief 30

PPSA raised business transparency:
With the introduction of PPSA act, transparency with regard to business i.e. consumer
and business became much easier. This is because search of PPSR with regard to any property
would be easy with the opening of just one register and getting details about the registered
securities interest12.
Thus, with the introduction of the PPSA act helped in removing all kinds of loopholes
associated with previous thumb rule and helped in enabling transparent and free transfer.
Hamersley v Forge case:
This case is based upon liquidation and set off rights aspects. As per this case an
agreement with regard to Hamersely Iron Pty Ltd and Forge Group Power Pty Ltd was come
into effect. With regard to this case, Hamersely contracted Forge Group for engineering,
procurement service13.
Forge entered under General Security Agreement (GSA) with the ANZ fiduciary Services
which is a secured creditor14. Later Forge moved into liquidation and here Hamersely raise a
charge against the Forge for the unpaid payment and non-performed work. Due to this case was
filed in the court with regard to determination of results. Various judgements were given and it
was found that when Hamersely made an argument with the Forge Group, it created a floating
rate of charge that was required to be crystallized before it may give right to legal proprietary
interest. Later court rejected this argument and clarified that concept of fixed and floating charge
were no longer associated with the PPSA act. However, with the implication of PPSA act
security interest in terms of property was clarified.
Conclusion
Thus, from the above discussion it would be right to conclude that PPSA has successfully
helped in developing a single, uniform national approach to personal property securities. It has
successfully replaced old thumb rule and clarified personal property and secured interest.
Likewise, it was also noted that with the introduction of PPSA clarified various aspects and
concepts of mortgage, pledge. Those concepts were replaced with the aspect of secured interest
12 Cuming, Ronald CC, et al. "Proposals for Changes to the Canadian Personal Property Security
Acts." (2017) 59 Can. Bus. LJ 145.
13 Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (2017) 52 WAR 90, [342]; [2017] WASC 152.
14 Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (2018) 53 WAR 325; [2018] WASCA 163.

towards the personal property. PPSA Act directly helped in clarifying personal property laws but
on the other hand brought complication for small traders and businesses which is depended upon
mortgage or pledge in order to run their business rather being complied with the laws and
regulations.

REFERENCES
Books and journals
Armit, Paul. "Legal update: Enforcement of security interests by insiders." (2019) 31(4)
Australian Restructuring Insolvency & Turnaround Association Journal 32-35.
Castellano, Giuliano G., and Marek Dubovec. "Credit Creation: Reconciling Legal and
Regulatory Incentives." (2018) Law & Contemp. Probs. 81 : 63.
Cuming, Ronald CC, et al. "Proposals for Changes to the Canadian Personal Property Security
Acts." (2017) 59 Can. Bus. LJ 145.
Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (2017) 52 WAR 90, [342]; [2017] WASC
152.
Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (2018) 53 WAR 325; [2018] WASCA
163.
L Widdup, “The PPSA and the General Law: How Do They Work Together?” (2019) 46(4) Brief
30
Loxton, Diccon, Sheelagh McCracken, and Andrew Boxall. "PPSA models: A minimalist
approach." (2018) Commercial Law Quarterly: The Journal of the Commercial Law
Association of Australia 32.1 : 3-31.
McCracken, Cheelagh, and Greg Tolhurst. "Shifting Roles in Dealings with Artwork as
Collateral: An Australian Perspective." (2017) Art Antiquity & L. 22 : 221.
Rasheed, Ayesha. "'Personal'Property: Fourth Amendment Protection for Genetic Information."
(2021) 23(3) University of Pennsylvania Journal of Constitutional Law 547.
Sheehan, Duncan. (2017)The principles of personal property law. Bloomsbury Publishing.
Brown, David. "Australia's Corporate Rescue Laws: Boldly Going Aboard the Enterprise
Mission?.(2019)" First published in Insolv. Int 32(3): 101-108.
Online references
A mortgagee is required to take reasonable steps to verify the identity of a mortgagor (2020) <
https://lplc.com.au/resources/lij-article/establishing-identity>
Hamersley v Forge: the limitations of set-off rights in a liquidation scenario (June 2017)
<https://www.kwm.com/en/au/knowledge/insights/hamersley-forge-limitations-set-off-
rights-liquidation-scenario-20170627#:~:text=The%20Hamersley%20v%20Forge
%20case,have%20had%20against%20the%20transferor.>
Personal Property Securities Act 2009 (2021)
<https://www.legislation.gov.au/Details/C2014C00273>
PERSONAL PROPERTY SECURITIES ACT 2009: OVERVIEW AND IMPLICATIONS FOR
COMMODITIES TRADING (2021) <https://www.hfw.com/Personal-Property-
Securities-Act-2009#:~:text=The%20Personal%20Property%20Securities
%20Act,'%20in%20'personal%20property'.>
PERSONAL PROPERTY SECURITIES ACT 2009: OVERVIEW AND IMPLICATIONS FOR
COMMODITIES TRADING (2021) <https://www.hfw.com/Personal-Property-
Securities-Act-2009>