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Like other crises that have come before it, both financial and otherwise, Covid-19 has impacted business revenue in almost all sectors. Government mandated social and business lockdowns in Australia and overseas have resulted in contracted liquidity and businesses needing to expend cash, tap government grants and credit lines and request new, amended or extended lines of credit from financiers.

In this economic climate, it is important that borrowers and financiers look closely at their financing terms and consider any security which has been given against business assets to enhance and de-risk debt repayment, ensuring they understand exactly what has been agreed and that their interests are well protected.

To this end, the objective of this article is to review the nature of security interests under the Personal Property Securities Act 2009 (Cth) (PPSA) and more specifically, consider the most common categories of personal property that are pledged as security in Australian debt financing transactions and highlight important tips for borrowers and financiers.


The introduction of the PPSA and its unitary approach founded on the philosophy of substance over form, was a significant departure from the formalistic methods adopted in Australian secured transaction law before 2011. The general definition of ‘security interest’ now contained in section 12(1) of the PPSA, as complemented by the example dealings listed in section 12(2) and extended by the application of the deemed security model included at section 12(3), has transformed how one must approach the concept of personal property security interests.

History and context

After some 40 years of consultation and committee recommendations, the Australian PPSA was enacted in 2009 and came into force in 2011. The PPSA takes as its starting point the personal property securities (PPS) model adopted in the United States, Canada (particularly the Canadian province of Saskatchewan) and New Zealand, but makes a number of substantive departures. Underpinning each of these PPS law regimes is a unitary concept of a security interest that applies a substance over form approach.


There are a number of practical and economic considerations that a legislature needs to balance in order for a secured PPS model to operate coherently and promote general economic prosperity.

By way of example, a legislature will need to consider how the model will, among other things, allow debtors to use the full value inherent in their assets to support credit, validate non-possessory security rights in all types of assets, enhance certainty and transparency, establish clear and predictable priority rules, facilitate efficient enforcement of secured creditors’ rights and provide for equal treatment of diverse sources of credit and of diverse forms of secured transactions.

The Australian lawmakers had in mind the following over-arching objectives when drafting the PPSA – increase the consistency and certainty of secured finance, reduce the complexity of secured finance, reduce the cost of secured finance, enhance the ability of businesses and consumers to use their assets as security and improve their ability to access cost-effective finance.

Functional approach

Section 12(1) of the PPSA defines a security interest as an interest in personal property (both tangible and intangible), provided for by a transaction that, in substance, secures a payment or performance of an obligation.

This definition of ‘security interest’ adopts a functional approach by looking to the substance of the transaction as opposed to its form. This approach is a radical shift from the pre-PPSA position, which focused on title, ownership and the form of the security instrument, and was founded on a combination of statute, common law and equitable principles.

Section 12(3) of the PPSA lists several further categories of transactions that are deemed to be security interests for the purposes of the PPSA, regardless of whether these same transactions in substance secure payment or performance of an obligation. Such interests include that of a:

  • transferee under a transfer of an account or chattel paper;
  • consignor who delivers goods to a consignee under a commercial consignment; and
  • lessor or bailor of goods under a PPS lease (being a lease or bailment that is of indefinite duration or which can exceed two years with renewals and extensions).

Classification scheme and public register

The PPSA employs a comprehensive classification scheme by separating personal property into a number of collateral classes. It is important to determine how collateral, the subject to of a security interest, is classified under the scheme in order to understand the formalities associated with attachment and perfection relevant to that collateral, the benefits and distinct rules that may apply to any specific collateral class and how best to accurately capture the collateral when registering a financing statement on the Personal Property Securities Register (PPSR).

The classification scheme divides personal property into four separate collateral classes, being, intermediated securities, financial property, goods (being tangible property) and intangible property. The PPSA further divides financial property into five sub-classes, including chattel paper, currency, documents of title, investment instruments and negotiable instruments. The goods collateral class includes such property as motor vehicles, crops and livestock, extracted minerals and space objects. The intangible property class operates as a catch-all category, with the most common examples of intangible property being accounts, intellectual property and licences.


Writing requirement

A written security agreement under the PPSA must:

  • identify the secured party (typically a creditor or representative of a creditor, such as a security trustee) and the grantor (being the person that creates a security interest to secure either its own obligation or that of another person);
  • indicate the parties’ intention to create a security interest;
  • must be signed by the grantor; 
  • contain a description of the collateral; and
  • otherwise comply with the general principles of contract law.

This is what is termed the ‘writing requirement’; however, a security interest remains unenforceable against both the grantor and third parties unless it has ‘attached’ to the property secured.


Enforceability against grantor

In order for a security interest to be enforceable against the grantor the security interest must have ‘attached’ to the property secured.

A security interest ‘attaches’ for this purpose when the following elements are satisfied:

  • the grantor has rights in the collateral (legal or equitable proprietary rights in the collateral are sufficient and full ownership is not required) or the power to transfer rights in the collateral to the secured party; and
  • either:
    • the grantor does an act by which the security interest is granted. This is most commonly satisfied by entry into a valid security agreement (the writing requirement noted above must be satisfied); or
    • the secured party must give value for the security interest (a loan or the promise of a loan would qualify as value).

Enforceability against third parties

In order for a security interest to be enforceable against third parties (meaning, other persons who may claim an interest in the same property), in addition to satisfying the above ‘attachment’ requirement, the secured party must either possess the collateral, control the collateral or have entered into a written security agreement in respect of the collateral (the above written security agreement requirements apply).


Under the PPSA an additional step is required to ‘perfect’ the security interest.

To perfect a security interest, the security interest must have ‘attached’, be enforceable against a third party and one of the following perfection steps must have occurred – being registration, possession or control.

Perfection is not mandatory under the PPSA. However, if a security interest is not perfected, then:

  • it vests in the grantor immediately on the grantor entering into voluntary administration, bankruptcy or liquidation;
  • a competing secured party may have a higher priority interest; and/or
  • third parties may acquire an interest in the collateral free of the secured party’s interest.


The general method adopted in the PPSA for achieving third party effectiveness of a security interest is by registration of a notice (termed a ‘financing statement’) on the PPSR. However, the PPSA also recognises two additional methods of third party effectiveness, being possession and control.


A secured party may perfect its security interest by taking possession of the collateral. To perfect a security interest by possession, the secured party must take actual physical possession of the collateral (constructive possession is insufficient, because it does not meet the publication objective).


In addition, the PPSA permits a secured party to perfect its security interest in certain types of collateral by control. The PPSA provides that a security interest in any of the following types of collateral may be perfected by control:

  • authorised deposit taking account;
  • intermediated security;
  • investment instrument;
  • uncertificated negotiable instrument;
  • right evidenced by a letter of credit; and
  • satellites and other space objects.

Sections 25–29 (inclusive) of the PPSA identifies what the secured party must do to obtain control in each of the above cases, except the last (there are no rules in the PPSA governing satellites or space objects).

Registration timing and grace periods

The general rule under the PPSA, where two competing effective security interests in the same collateral are in conflict, the first security interest to be perfected (by registration or otherwise) retains priority. The PPSA attenuates the first to register priority rule by accommodating ‘grace perfection periods’ for some registrations. These grace periods establish retroactive priority provided registration, is taken within a certain period of time of the grantor and secured party signing the agreement that gives rise to the security interest.

20 business day rule

Where the grantor is a company, the security interest must be registered within 20 business days after the security agreement giving rise to the security interest came into force.

The consequences of failing to register within 20 business days will result in the security interest vesting in the grantor on its insolvency. If a registration is made after this time, the security interest remains subject to this vesting risk for 6 months following the registration.

15 business day rule

Where the security interest is a purchase money security interest (PMSI), section 62(3) of the PPSA requires such interest to be registered within the following periods:

  • if the collateral is inventory and goods, before the grantor obtains possession of the goods;
  • if the collateral is inventory (other than goods), before the security interest attaches to the inventory;
  • if the collateral is in personal property (other than inventory) in goods, within 15 business days of the grantor obtaining possession of the goods; and
  • if the collateral is in personal property (other than inventory or goods), within 15 business days of the security interest attaching to the property.

If you fail to register the security interest within the relevant time period described above, the security interest will lose its PMSI status.


A secured party may want to take a security interest in cash held by a grantor, generally contained in an ADI account (see the ‘Bank Account’ section below for a definition of ‘ADI’ and ‘ADI account’) or otherwise held as tangible currency. This often occurs in the context of secured borrowing or financial market transactions, particularly where the grantor is a business that has significant cash assets.

The ADI that is the deposit holder of the ADI account may enter into a flawed asset arrangement which restricts the depositor from withdrawing money from the ADI account until another debt obligation is met. The ADI can use cash in the account to set off amounts owed to it by the depositor.

A grantor may provide security over its inventory. This is common in secured borrowing, retention of title arrangements, hire purchase agreements and leases.

Perfection of a security interest in cash and inventory

Security interests in cash and inventory can be perfected under the PPSA by registration or control, though special considerations apply as set out below. As cash is typically held in an ADI account, the PPSA considerations in respect of ADI accounts are also relevant (see the ‘Bank Account’ section below in this regard).

Circulating nature of cash and inventory

Under the PPSA, cash and inventory are classified as circulating assets which, if not controlled by the secured party, will rank in insolvency behind certain statutory preferred creditors (such as employee entitlements and administrator’s costs).

A secured party may avoid this by taking control (by restricting the grantor’s ability to deal with the assets) over the cash or inventory and registering its control on the PPSR. Giving the secured party control over cash and inventory is unusual for a secured financing as it is commercially impractical to restrict the grantor’s freedom to deal with those assets in the ordinary course of business. For example, a grantor often relies on its cash flow for its day to day business expenditure. However, control over cash may be used in highly structured financings such as project finance transactions.

Circulating security interests are also subject to a 6 month proving period under section 588FJ of the Corporations Act 2001 (Cth) whereby the circulating security interest is voidable in certain circumstances if the grantor becomes insolvent within 6 months of the security interest having been created.

Inventory and its status as a ‘purchase money security interest’

Certain security interests over inventory, such as retention of title arrangements and some leases, can be classified as a purchase money security interest (PMSI) and therefore benefit from having ‘super priority’ over all other competing security interests (save for a security interest in collateral that is perfected by control). In order to obtain PMSI status, the secured party must register its PMSI interest:

  • for inventory that is ‘goods’ (defined in the PPSA to mean ‘tangible property’) – before the grantor obtains possession over the relevant inventory; or
  • for any other inventory (i.e. intangible property) – before the security interest ‘attaches’ to the relevant inventory.

Third party control of accounts

Situations may arise whereby a grantor’s operations are structured such that proceeds or cash are held in a separate account in the name of a third party. For example, a property owner may direct its rental proceeds to be held by a third party property manager in charge of collecting rent from tenants.

In these scenarios, the secured party could take security over the grantor’s contractual right to the proceeds and, if possible, specific security from the third party over the ADI account where the proceeds are held.

Regardless of whether the secured party is able to obtain a separate specific security interest over the third party’s ADI account, it should also, as an additional step, enter into an account bank deed between the grantor, the third party (i.e. the property manager in the scenario above) and the account bank (assuming the secured party is not the ADI where the third party’s ADI account is held).

If a PPSA security interest exists in favour of the grantor over those proceeds held by the third party, the secured party should ensure that the grantor’s security interest is also perfected under the PPSA.



  • Where cash is held in a separate account in the name of a third party the secured party should:
    • consider taking security over the grantor’s contractual right to the proceeds (from the third party) and, if possible, specific security from the third party over the ADI account where the proceeds are held; and
    • as an additional step, enter into an account bank deed between the grantor, the third party and the account bank (assuming the secured party is not the ADI where the third party’s ADI account is held).
  • There may be circumstances where the secured party will seek to obtain control over cash or inventory in order to avoid being subordinated to statutorily preferred creditors on a grantor’s insolvency. However, given the uncertainty around the impacts of Covid-19, grantors may reconsider giving control over these assets as it may cause immediate liquidity or business operation issues.



For certain types of financing transactions, a secured party may seek to obtain security over a grantor’s ADI account. An ADI account is recognised in section 12(4)(b) of the PPSA as being capable of being the subject of a PPSA security interest in favour of the ADI in which the ADI account is kept.

What is an ADI account?

In section 10 of the PPSA:

  • an ‘ADI’ is defined as an authorised deposit taking institution within the meaning of the Banking Act 1959 (Cth), namely a body corporate who has been granted an ADI licence, permitting it to carry on banking business in Australia, by the Australian Prudential Regulation Authority; and
  • an ‘ADI account’ is defined as an account within the ordinary meaning of that term, held with an ADI which is payable on demand or at some other point in the future as agreed between the ADI and the account holder.

It is commonly agreed that the definition of ‘ADI account’ includes deposit accounts and loan accounts. The credit agreement with the grantor will often govern how rental, sale, equity or insurance proceeds are deposited into such accounts. As a result, the secured party will be interested in ensuring that any ADI account that is receiving such forms of income from the grantor, the development or the project is captured by the secured party’s security.

Perfection of a security interest in an ADI account

A security interest over an ADI account must be ‘perfected’ in order to ensure the secured party is best placed to enforce its security interest in priority to all other creditors. A failure to do so would expose the secured party to the risk of its security interest ranking in priority behind other competing security interests in that same ADI account (i.e. the secured party will not have a first right of enforcement against the underlying collateral).

Automatic perfection

An ADI will be deemed to have automatically perfected its security interest in an ADI account by virtue of being the ADI with which the account is held (section 25 of the PPSA). Section 75 of the PPSA provides that a security interest in an ADI account perfected by control has priority over any other perfected security interest in the same ADI account.

The need for an account bank deed

If the secured party is not the ADI with which the ADI account is held, the secured party can establish ‘control’ in accordance with the extended definition of that term under section 341A of the PPSA. In order to do so, the secured party must:

  • be able to direct the disposition of the ADI account funds without further consent from the grantor. Such a direction right is typically documented by way of an ‘account bank deed’ between the secured party, the grantor and the ADI who holds the ADI account; or
  • the secured party becomes the ADI’s customer with respect to the ADI account.

The secured party is also required to register its security interest over the ADI account on the PPSR in order to perfect its security interest.

Other interests in an ADI account

The ADI who is the deposit holder of the ADI account may also have other types of interests over the ADI account, which can operate in addition to any security interest over the account.

Banker’s lien

The ADI who is the deposit holder may hold a banker’s lien over the ADI account. A banker’s lien gives the deposit holder the right to retain possession over the ADI account until all debts owed to the deposit holder as the account bank are paid. A banker’s lien is a type of possessory lien which can arise by operation of law or by agreement. Banker’s liens operate outside the PPSA (see section 8(1)(c) of the PPSA in this regard) and may have priority over all other security interests if certain conditions are met, such as the deposit holder not having knowledge of the other security interests.

Flawed asset arrangement

A flawed asset arrangement is included as an example security interest in section 12(2) of the PPSA. However, the boundaries of what constitutes a flawed asset arrangement are difficult to determine as no definition is included in the PPSA. The term is most frequently applied to describe a situation where the ADI and the account holder enter into an agreement that prevents the account holder from accessing its funds until some other obligation is satisfied.

In other words, the releasing of the deposit is conditional on the account holder first satisfying obligations owed to the secured party, for example payment of a debt or the absence of a specific event. Upon the event occurring, for example the debtor becoming insolvent and defaulting under a credit agreement, the secured party then has rights to realise the asset, which up until that time was considered ‘flawed’.

Where a flawed asset is created as described above and the entity holding the deposit is an ADI, such interest is automatically perfected pursuant to section 25 of the PPSA in favour of the ADI and no registration is required in order to perfect the security interest. The secured party will benefit from section 75 of the PPSA and have priority over all other security interests in the ADI account. However, where the ADI account is not a term deposit, it would be prudent for the secured party to document that the ADI account is not a circulating security asset and that the secured party will retain priority in the ADI account accordingly. In such a scenario, the secured party should proceed to register the security interest the subject of the security agreement on the PPSR disclosing its control.

Set-off and combination of accounts

The deposit holder may also have set-off rights or a right to combine accounts in respect of the ADI account. These are not security interests under the PPSA, but may be relevant where the secured party is seeking a security interest over funds held in an ADI account.



  • Where the secured party is not the ADI with which the ADI account is held, the secured may should consider how it can establish ‘control’ in accordance with the extended definition of that term under section 341A of the PPSA. For example, by entry into an account bank deed.
  • Grantors should consider the restrictions that may apply to their ADI accounts that are subject to security. For example, constraints on the ability to withdraw amounts from its account, whether under the security or a flawed asset arrangement, may impact the grantor’s liquidity.
  • Where the ADI account the subject of a flawed asset arrangement is not a term deposit, it would be prudent for the secured party to document that the ADI account is not a circulating security asset and that the secured party will retain priority in the ADI account accordingly. In such a scenario, the secured party should proceed to register the security interest the subject of the security agreement on the PPSR disclosing its control.
  • If the secured party is not an ADI and it possesses a security interest provided for by a flawed asset arrangement in relation to an account, the secured party would need to register the security interest in order to perfect its interest.



In addition to taking security over an obligor’s specific assets, a secured party may also take security over the shares of the obligor. In a limited recourse financing, this will include taking security over the shares of the special purpose vehicle being used for the project.

Shares in a company are considered ‘personal property’ for the purposes of the PPSA.


Taking share security offers several advantages to secured parties, including:

  • greater control of ownership of the grantor providing share security as it will be bound by a negative pledge to not transfer those shares;
  • greater flexibility in an enforcement scenario by allowing the secured party to sell the ownership in the company or project vehicle whose shares are the subject of the share security as a going concern rather than selling individual company or project assets (which may require consents from third parties); and
  • tax benefits in connection with transfer duty payable from a transfer of land generally being higher than the transfer duty payable for a transfer of shares.

Important Considerations

Share security may be perfected by possession or registration.

Perfection by possession (certificated shares)

Perfection by possession is preferable because the PPSA provides higher priority for a security interest perfected by possession than one by registration. Perfection by possession can be achieved for certificated shares in an unlisted company, by the secured party taking possession of the share certificates and share transfer forms executed by the security provider, but with the transferee details left blank.

Perfection by control (shares held on CHESS)

Shares listed on the Clearing House Electronic Sub-register System (CHESS) are subject to the control perfection rules in section 26 of the PPSA. A secured party may perfect its security interest by control in such shares in one of three ways:

  • by a control agreement made between the grantor and the intermediary or by an agreement between the grantor and the secured party, notice of which is then given to the intermediary;
  • having the securities account that holds the shares transferred into the name of the secured party or into the name of another person who acknowledges in writing that they hold the shares on the secured party’s behalf; or
  • the secured party may enter into an agreement allowing it to initiate or control the sending of electronic messages by which the shares can be dealt with.

Perfection by registration

Share security may also be perfected by registering a financing statement on the PPSR against the grantor. Possession and control are superior methods of perfection, but it is nevertheless common for secured parties to perfect also by registration.



  • Where possible, perfection by possession is preferable because the PPSA provides higher priority for a security interest perfected by possession than one by registration.
  • You must perfect your interest in shares listed on CHESS by control.
  • Review the constitutional documents of the company the subject of the share security to ensure there are no barriers to enforcement (i.e. a right for the board of directors to refuse to register a transfer of shares).
  • Ensure the share security is being granted over the appropriate entity (i.e. the entity that holds the key assets including the land and development approval).
  • When taking security over shares in a listed Australian company, ensure the money lending exemptions will apply to your transaction. If the secured party is not ordinarily in the business of providing financial accommodation, then additional advice may be required to ensure the grant of the share security complies with the Corporations Act 2001 (Cth) requirements and, if the secured party is a foreign entity, the Foreign Acquisition and Takeovers Act 1975 (Cth) requirements.



Depending on the nature of the a grantor’s business, its most important and valued asset could be its contractual rights or receivables (i.e. its book debts).

Security over contractual rights

Security over the contractual rights of a grantor is commonly taken by a secured party in a specific asset or project financing. These contracts often form part of the development, project or transaction being undertaken by the a debtor (being a party that owes performance of a secured obligation, including a borrower or secondary obligor).

Contractual rights are choses in action and as a general rule, capable of forming part of the collateral the subject of a security interest created and registrable under the PPSA unless: 

  • the contract has a ‘personal’ element (Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660); or
  • the contract contains a prohibition on the assignment (or charging) or permits the assignment or charging of the contract on consent of the other party.

A purported security by way of assignment of the contractual right in breach of a prohibition on assignment or creation of a security interest would be ineffective to transfer the contractual right to the secured party as the purported assignee and therefore invalidate the security (Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85).


Prior to the secured party taking a security interest over a contractual right, it would be important to review the underlying contract to ensure there is no restriction on the ability of the grantor to assign or grant a security interest over its contractual rights. If a restriction on security or assignment exists, then the grantor would need to seek the consent of the counterparty to the assignment.



Key contracts

To determine whether there is a key contract the secured party should be taking security over, one would ask the question as to whether the project could complete or continue to operate without such contract.

In development financing transactions, it is common for a security interest to be taken over the following contractual rights:

  • long term or crown leases: between the grantor (as lessee) with a government body or long-term landlord (as lessor);
  • anchor tenant leases: between the grantor (as lessor) and any major tenant (as lessee);
  • construction contract: between the grantor and the contractor for the construction or design and construction of the project or development;
  • residential contracts of sale: between the grantor as vendor and third parties as purchasers of the residential contract of sale;
  • supply or operating and maintenance contracts: between the grantor for essential supply (such as electricity);
  • off-take agreements: between the grantor and the party acquiring the resource generated from the project;
  • shareholders’ agreement / equity contribution agreement: between the grantor and the sponsors;
  • statutory licences and concessions: granted to the grantor which are required in order to continue to operate or undertake the development; and
  • insurance contracts: taken in the name of the grantor. 


In order to give the secured party greater control of the underlying contractual arrangements via step-in and cure rights and to enable the secured party to more effectively deal with its security on enforcement, the secured party can also enter into side deeds (known as tripartite or multipartite deeds) with the grantor and any third party.



Security over receivables

For a business whose main or significant source of income is its receivables or book debts, a security interest granted over the receivables would be the secured party’s most valued security.

The secured party’s security interest would be over the grantor’s chose in action (being its right and entitlement to receive and claim the receivables) and over the bank account into which the receivables are deposited (see the ‘Bank Account’ section above in this regard).


The Covid-19 pandemic has certainly caused significant supply chain disruptions and delayed cash flow implications on many businesses, particularly those across the extended supply chain.

Businesses in the supply chain have experienced unprecedented cancellation of orders during this uncertain time and suppliers of goods have had to extend their customer credit terms to assist their customers with their cash flow management.

As a result, we anticipate:

  • the secured party may require more control and visibility in the receivables collection process, as minimising disruption to a grantor’s cash flow and minimising errors in a grantor’s billing process is becoming more important than ever. It would not be surprising for the secured party to add undertakings in the security document to ensure the grantor maintains healthy receivables management practices, such as timely and accurate invoicing and focusing on customer-specific payment performance, by incentivising early or prompt customer repayments; and
  • secured parties should also be alive to the issue that the grantor may be considering debt factoring (i.e. selling its receivables to a third party at a discounted rate) during this time in order to improve its cash flow situation. This would usually trigger the disposals prohibition under its security agreement with the secured party and the grantor would require consent from the secured party to do so. The secured party would only consent to this option provided all or part of the proceeds of the sale were applied to prepayment of amounts owing to the secured party. 



Motor vehicles are captured by the definition of ‘goods’ in section 10 of the PPSA. Motor vehicles for the purposes of the PPSA are serial numbered goods that can include some items of equipment not normally considered to be a motor vehicle, for example certain lifts and construction equipment.

Methods of motor vehicle financing

Businesses often obtain financing for specific purchases of motor vehicles through the following methods:

  • the finance being provided by the seller of the motor vehicle being purchased; or
  • the finance being provided by a financier who is either an independent third party or an affiliate of the seller (a finance company created by the seller to encourage and facilitate sales).

The seller or financier often retains title to the motor vehicle to secure the payment of the purchase price or alternatively will be granted a security interest in the motor vehicle that has been purchased to secure the repayment of the credit or loan.

Definition of motor vehicle

The definition of the term ‘motor vehicle’ is found in regulation 1.7 of the Personal Property Securities Regulations 2010 (Cth). It includes personal property that:

  • is built to be propelled wholly on land, by a motor vehicle that forms part of the property;
  • is capable of a speed of at least 10 km/h;
  • has one or more motors that have a total power greater than 200 watts;
  • has either a vehicle identification (VIN), a chassis number or the manufacturer’s number (each a Serial Number); and
  • does not run on rails, tram lines or other fixed path.

In addition, it includes personal property that:

  • is capable, when being towed by, or attached to, a motor vehicle, of travelling at a speed greater than 10km/h;
  • is a piece of machinery or equipment that is equipped with wheels and designated to be attached to, or towed by, a motor vehicle; and
  • has a Serial Number.

A common complaint is that the complexity of the definition makes it difficult for a secured party at times to know whether to register a financing statement against the collateral class ‘motor vehicle’ or ‘other goods’ and it is similarly difficult for a party searching the register to know which collateral class to search against.

Perfection methods

A secured party can perfect its security interest in a motor vehicle either by registration or possession. Possession will however not likely be a viable perfection alternative in almost all cases.

There are two common forms of registration that creditors make that can perfect motor vehicle security interests. The first is specific motor vehicle registrations (discussed below) and the second is an all present and after-acquired property (All-PAAP) registration. Some creditors will use a combination of both.

By way of example, it is common for a financier who is extending working capital credit to a company whose primary assets comprise motor vehicles (i.e. a transport company), to complete motor vehicle specific registrations on the PPSR in addition to any existing All-PAAP registrations over the company. Typically a threshold figure will be agreed upon as part of the general security agreement and should the value of the motor vehicle exceed that limit, the grantor will need to provide the secured party with Serial Number details so that the secured party can make a specific motor vehicle registration.

Depending on the structure of the financing arrangement, some specific motor vehicle registrations can be classified as PMSIs and therefore benefit from a ‘super priority’ over all other competing security interests.

Specific motor vehicle registration rules

Item 4 in the table appended to section 153(1) of the PPSA provides that a financing statement must indicate whether a motor vehicle is commercial property or consumer property.

Motor vehicles – consumer property

If the motor vehicle is consumer property then the financing statement must set out the Serial Number, but not the grantor’s details. So, for example, if the collateral is a car the grantor uses for domestic purposes, the financing statement will include the VIN, but will not include the grantor’s name or other details. It follows that the party searching the PPSR only has one option, namely, to search against the Serial Number.

Motor vehicles – commercial property

If the motor vehicle is commercial property, then the financing statement may set out the Serial Number, but it must include the grantor’s details. So, for example, if the collateral is a truck that the grantor uses for business purposes, the financing statement may include the VIN and it must include the grantor’s details. This suggests that the party searching the PPSR can choose a Serial Number search, a grantor’s details search or both. It follows that a secured party will prudently register a security interest against the grantor as well as against the Serial Number, to protect against taking free rules detailed below.

Taking motor vehicles free of a security interest

As a general rule, if a security interest is perfected and the secured party does not authorise the grantor to sell the collateral the subject of the security interest, the buyer or lessee will take the collateral subject to the security interest. An all-asset security interest perfected by way of an All-PAAP will, however, attach to the proceeds from that same sale.

However, in relation to motor vehicles, section 45(1) of the PPSA creates an exception to this rule. It provides that a buyer or lessee for new value takes the motor vehicle free of a security interest if a search of the register by Serial Number immediately before the time of sale or lease would not reveal a perfected security interest.



  • A secured party can perfect its security interest in a motor vehicle either by registration or possession. Possession will however not likely be a viable perfection alternative in almost all cases.
  • In order to mitigate the taking free rule described above, secured parties should consider completing motor vehicle specific registrations on the PPSR.
  • Check that all details on the financing statements are correct so to maximise enforceability, in particular any Serial Numbers.
  • Creditors can best protect themselves by registering early on the PPSR, even before the paperwork for the financing arrangement has been completed and signed by the parties.
  • Check the Serial Number referenced in the financing statement registered on the PPSR and whether it is identical to the Serial Number contained on the motor vehicle. In this regard, some secured parties request copies of motor vehicle registration documents along with photos of the vehicle and the Serial Number located on the body of that vehicle.
  • Both general law repairer’s liens and warehouseman’s liens have been found to hold a priority interest in motor vehicles over security interests registered on the PPSR. A creditor seeking to enforce its security interest over a motor vehicle where a repairer or warehouse holds that motor vehicle will need to engage such third parties and determine if they are willing to release possession of the motor vehicle. It is common for the motor vehicle to be released on the basis that the repairer or the warehouse is the first in line to receive payment for the value of the repair work or warehousing from the sale of the car.
  • A party searching the register who is unsure if the good in question satisfies the definition of ‘motor vehicle’ should complete a ‘motor vehicle’, ‘other goods’ and general ‘grantor / seller details’ search.



In secured financing a financier’s right to enforce its security is typically triggered upon an event of default or other defined enforcement event documented in the underlying credit or security agreement.

Chapter 4 of the PPSA regulates the enforcement of these security interests. It is however common for parties to contract out of several PPSA enforcement provisions, where collateral is not used predominantly for personal, domestic or household purposes. In addition, the PPSA enforcement provisions do not apply where a receiver or controller has been appointed to deal with a grantor’s property.

The topic of enforcement will be the subject of a future briefing.

Key contacts

Lucy McCullagh photo

Lucy McCullagh

Partner, Head of Finance, Melbourne, Melbourne

Lucy McCullagh
Josh Todd photo

Josh Todd

Senior Associate, Melbourne

Josh Todd