Perfecting a security interest takes more than registering on the PPSR
A secured party is well-advised to perfect its security interest to protect its rights in the personal property subject to the security interest. The PPSA provides for three different perfection steps: registration, possession and control. Registration on the PPSR is the most common perfection step.
One common misconception is that the act of registration itself has the legal effect of perfecting a security interest. In actual fact, registering is merely a necessary component of “perfecting” a security interest. More is required. In particular, it is necessary to have an underlying document evidencing that the owner of the personal property (or a buyer on credit) is granting a security interest to the secured party.
A security interest is perfected if all of the following apply:
- The security interest is attached to collateral;
- The security interest is enforceable against a third party; and
- A registration is effective with respect to the collateral (unless the security interest could be perfected by possession or control).
See section 21.
In general terms, attachment requires that the grantor of the security interest has an interest in the property and the secured party has given value for the security interest. Attachment can, therefore, occur even if the security agreement is an oral security agreement. Attachment means the security interest is enforceable against the grantor.
But, to achieve a perfected security interest, the security interest must also be enforceable against a third party. This requires the security agreement to be evidenced in writing. Therefore, a secured party with an oral security agreement cannot perfect its security interest even if the secured party registers.
In addition to being in writing, a security agreement must “cover the collateral” before it becomes enforceable against third parties and capable of being perfected. The security agreement must:
- be either signed by the grantor, or otherwise “adopted or accepted” by the grantor; and
- contain a “description of the particular collateral” or a statement that a security interest is taken in all of the grantor’s present and after-acquired property or a statement that a security interest is taken in all of the grantor’s present and after-acquired property except specified items or classes of personal property.
The Federal Court of Australia in Pozzebon (Trustee) v Australian Gaming and Entertainment Ltd, in the matter of Australian Gaming and Entertainment Ltd (in liq)  FCA 1034 (Pozzebon), addressed whether a security interest was “perfected by registration, and by no other means”.
The Court found that attachment and enforceability are “mandatory prerequisites to the perfection of a security interest” and that all the elements of section 21(1)(b) must be satisfied to perfect a security interest.