Enforcing personal property security interests

A security interest will be enforceable against a grantor when it attaches to collateral and either the secured party has possession or control of the collateral, or a security agreement covers the collateral: section 20.

The rules governing the enforcement of security agreements to which the Personal Propertyy Securities Act applies are set out in Chapter 4 of the Act.

Depending on the security interest type and the collateral type secured parties will need to develop new enforcement procedures to comply with the Act.

Chapter 4 gives secured parties a number of enforcement rights and remedies (as well as obligations) which they would not, or may not, otherwise have under the terms of their security agreements and other legislation.

Chapter 4 distinguishes between collateral used predominantly for personal, domestic or household purposes and other collateral. Whether collateral is used predominantly for personal, domestic or household purposes has a bearing upon the extent to which parties can contract out of provisions of Chapter 4 and upon which remedies are available to a secured party under the Act.

The chapter sets out the rights and obligations of various interested parties in the event that a debtor defaults under a security agreement. Its object is to ensure that when enforcement action is taken all parties who may be affected have an opportunity to appropriately protect their interests. Those parties are:
• The secured party who is taking enforcement action;
• Any other secured parties;
• The grantor or owner of the collateral;
• The debtor, where the debtor is not the grantor; and
• Other interested parties.

All rights, duties and obligations that arise under Chapter 4 must be exercised and discharged honesty and in a commercially reasonable manner. This duty supplements the specific duties imposed by Chapter 4 and those imposed by the general law and other legislation.

Chapter 4 does not apply to:
• Interests which are deemed to be security interests but which do not in fact secure the payment or performance of an obligation, specifically:
• A transfer of an account or chattel paper that does not secure payment or performance of an obligation, or a security interest that is incidental to such a security interest;
• A lease of bailment of goods which is by definition a ‘PPS lease’ but which does not secure payment or performance of an obligation;
• A commercial consignment that does not secure payment or performance of an obligation.
• Security interests in goods that are located outside Australia .
• Property of a business while a receiver or controller appointed under Part 5.2 of the Corporations Act 2001 is in control of it .
• security interests provided for by security agreements made before the registration commencement time.

Any secured party can commence enforcement action.

If there are multiple secured parties any of them can commence enforcement action, regardless of their priority ranking. It is intended that such parties will be able to negotiate between themselves and reach agreement about enforcement.

However, if a secured party seizes collateral which is subject to a higher priority security interest, and the higher priority secured party was entitled to seize the collateral, the higher priority secured party can require the secured party which seized the collateral to hand over possession. In such circumstances the higher priority secured party will be liable for the reasonable
expenses of the secured party which seized the collateral.

Default triggers the secured party’s statutory rights and remedies. But judgments are not required, and don’t extinguish security interests.

The Act does not codify the enforcement rights of the parties to a security agreement. Chapter 4 is intended to operate in conjunction with other laws providing remedial and enforcement rights.

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