Personal Properties Securities 15 hours
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19bPPSPGSession4enforcementandinsolvency.pptxCopyright notice
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Secured Transactions in Commercial Law Session 4
Presented by
Professor Sheelagh McCracken
University of Sydney Law School
2 November 2019
Determining the impact of the PPSA on the remedies of the secured party and exploring the PPSA’s relationship with the insolvency regime and the registration regime
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Reminder: An analytical framework in a rules based system
Does a SI exist?
Threshold question (s 12; assuming s 6; subject to s 8)
When is a SI effective?
Central concepts
Attachment (s 19)
Enforceability against 3rd parties (s 20)
Perfection (s 21) – notion of ‘optimal protection’
What is the ranking of a SI?
Default priority rules (s 55)
Special priority rules: eg
‘Super-priority’ (ss 62, 63)
Control trumps all (s 57)
Other
What is the reach of a SI?
Continues after goods become an accession or commingled (Pts 3.3;3.4)
Buyer or lessee may take free (Pt 2.5)
Proceeds (s 32)
What remedies does a SI confer?
Seizure (ss 123; 125); Disposal (ss 128; s 129); Retention (s 134)
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Scope of Session 4
What remedies does a security interest confer?
Types of remedies under PPSA
Inclusion of contractual remedies
Chapter 4 remedies
The ‘Chapter 4’ remedial regime
General points to note
Seizure
Disposal/ Retention
Rights of grantor
PPSA relationship with the insolvency regime
Vesting
A word about security interests over circulating assets
PPSA relationship with the registration regime (see separate slides)
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Types of remedies under PPSA * inclusion of contractual remedies
Relevance in PPSA regime?
PPSA s 110: no derogation from ‘the rights and remedies’ in a security agreement
See eg Maiden Civil
Major remedies (see Appendix (and Session 1))
Sale
Possession
Foreclosure
Receivership
Relevant factors in determining remedies (see Appendix)
Type of security interest
Mortgage, charge, pledge (Palgo)
Agreement
Statutory assistance
Court
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Types of remedies under PPSA * Chapter 4 remedies
Major remedies
Disposal (incl sale)
Retention
Pre-requisite to exercise of remedies
Seizure (ss 128/134)
After seizure under s 123 – must dispose or take action to retain (s 125)
Relevant factors in determining remedies
PPSA (Ch 4)
Type of in substance security interest is (in theory) irrelevant
Not applicable to deemed security interests unless also in substance (s 109(1))
But don’t forget:
Security Agreement (s 110; previous slide)
Additional statutory assistance?
Court?
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The ‘Chapter 4’ Remedial Regime: General points to note
Diagram
(See Text: [1.280], Figure 1.5)
Potential application?
Inapplicable eg
excluded - under s 109; under s 116
Partially applicable
Eg: Household purposes (s 109); contracting out (s 115)
Special procedure
Liquid assets (s 120)
obligation secured by land and personal property (ss 117-118)
Manner of exercise of rights
On ‘default’ by the debtor – too limited? Whittaker [6.1.2]
In conjunction with rights under security agreement (s 110; Maiden Civil)
Exercise honestly and in commercially reasonable manner (s 111)
Restriction on ability to deal? S 112; Maiden Civil
Cumulative (s 114)
In conformity with National Credit Code (s 119; Regs)
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Seizure
Note terminology
Power to seize (s 123)
Arises if debtor is in default under security agreement
By legal method (incl by taking apparent possession: s 126)
Intangible property – by giving notice (unless other agreement)
If SP perfected through possession/control & debtor in default- seize by giving notice to grantor (s 124)
No requirement to be first ranking
Enforcing party may be given written notice to give possession (s 127)
Secured party who has seized under s 123 must (s 125):
Dispose or take action to retain
Position regarding accessions (See Session 3)
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Disposal
SP can dispose if SP has seized in exercise of right to seize on default, whether under s 123 or otherwise (s 128)
Method of disposal
By sale, lease (if in SA) or licence (if IP) – to 3rd party (s 128(2))
Duty to grantor and other SPs to exercise all reasonable care to obtain market value/best price reasonably obtainable (s 131)
By purchasing it (s 129)
If gives notice under s 130 and no notice of objection given
by public sale; at least market value
Inapplicable to collateral for personal use (s 109(5))
SP to give notice if proposing to dispose on default (s 130)
SP generally has to give statement of account (s 132)
SP disposes free of interests of grantor; SP; lower ranking SPs (s 133)
Order of distribution of proceeds (s 140)
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Retention
Power to retain if SP seized collateral in exercise of right to do so, whether under s 123 or otherwise (s 134)
Not applicable to collateral used for personal use
Can retain only if gives notice and no objection received (s 135)
If no objection received
Can take steps to have title to collateral pass (s 136)
Title passes free of interest of grantor; SI of SP to whom title passes and lower ranking security interests
Debt or other obligation held by retaining SP is extinguished
If an objection, SP has to sell or lease the property (s 137)
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Rights of grantor
Redemption and reinstatement
Prior to disposal
Any other person with a SI or grantor may redeem the collateral by paying amounts (s 142); unless:
Agree after default not to do so (s 142(2))
Contracted out (s 115(1)(q))
Prior to disposal or retention
Security Agreement can be reinstated – but only once (s 143)
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Appendix (see next slide for Notes to table)
| Legal mortgage | Equitable mortgage | Equitable charge | Pledge | Common law lien | |
| Transfer of legal title | |||||
| Transfer of eq interest | |||||
| Power to take/ retain possession | |||||
| Power to foreclose | |||||
| Power to sell | |||||
| Power to appoint a receiver | |||||
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Appendix : Notes to Table
Inapplicable to Torrens title mortgage
Although possession (itself a legal interest) passes, no legal title is transferred
Provided that there is an agreement to that effect. Otherwise there is no such power.
Subject to anomaly in mortgage over Torrens title land, which functions as if it were a charge.
Either (a) on application to the court; (b)if applicable, State and Territory legislation eg Conveyancing Act 1919 (NSW) s 109; or (c) under the terms of the agreement.
Except under statute.
This table and notes are a modified version of Figure 14.1 ‘Comparison of Available Remedies’ in Everett & McCracken’s Banking and Financial Institutions Law, Thomson Reuters Australia (9th ed) 2017 p 554; Text [3.260].
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PPSA relationship with the insolvency regime
‘trigger’
Insolvency event (s 267(1)(a))
Security interest is unperfected (s 267(1)(b))
’security interest vests in the grantor…..’ (s 267(2)) (subject to s 268)
Cf other jurisdictions:
New Zealand – no equivalent
Canadian provinces – eg ’not effective against the TinB’ Re Giffen
Constitutional?
White v Spiers Earthworks Ltd
OneSteel Manufacturing Pty Ltd (admins apptd)
Timing provisions under the Corporations Act 2001 (Cth)
S 588 FL(2) (perfection by registration)
Power of court to extend registration time (s 588M) (see Registration Slides)
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Further points on vesting
Unaffected security interests (s 268)
Protection of person acquiring for new value without notice (s 267(3))
Position if attachment occurs after winding up (s 267A)
Entitlement to damages (s 269)
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A word about security interests over ‘circulating assets’
Meaning (s 340) – circulating asset:
If asset is covered by ss 5
certain accounts; ADI account; currency; inventory; negotiable instrument
If SP has given grantor authority for transfer to be made in the ordinary course of grantor’s business free of security interest (but note ss 4)
Unless exception
Goods where SI is perfected by possession
Effective registration discloses that secured party has control and secured party has control
Provisions whereby control is explained (s 341; 341A)
Consequence
Eg certain creditors are preferred under Corporations Act
Intention – maintain previous position under fixed/floating charge regime
Ie – this is not a revival of the floating charge
(note: s 330 – ref to f/c in security agreement= attached to a circulating asset)
See Stumbles, ‘The competing priorities of secured creditors and preferred creditors on insolvency: an Australian perspective’ (2014) BJIBFL 570, who also notes additional basis for challenge by liquidator under Corporations Act s 588FJ
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PPSA relationship with the registration regime
See separate slides on registration.
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