Security interest

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Perfection [of a security interest] is not invulnerability The Personal Property Securities Act 2009 (PPSA) regulates the perfection of security interest (SI). A SI is defined as an interest in personal property provided by a transaction to secure payment or performance of an obligation.1 SI is created when it is attached to the collateral where the grantor holds rights in the collateral or the power to transfer rights in the collateral to the secured party (SP), provided that a value is given for the SI.2 Perfecting a SI means publicising the SI. Perfection includes temporary perfection, or when the SI is attached to the collateral and it is enforceable against a third party, provided that the SI has been registered, or the SP has possession of the collateral, or the SP has control of the collateral.3S21(2)(c) of PPSA states that controllable collaterals include ADI accounts, intermediated securities, investment instruments, letters of credit, and shares. Additionally, for the SI to be enforceable against third parties the SP must take possession or control of the collateral, or the grantor must have signed or adopted a security agreement containing the collateral’s description.4 A perfected SI takes precedence over an unperfected SI in a priority contest of the collateral. 5 In Graham v. Portacom New Zealand Ltd [2004] 2 NZLR 528, the bank registered its SI and defeated the lessor who did not perfect its SI. However, being perfected does not mean that the SI is invulnerable. Perfection is subjected to several priority rules. Even if the SP has perfected its SI, it is possible that it might receive nothing or less than what it has given when the grantor defaults. When more than one SPs have perfected their SI in the collateral, the first perfected SI will prevail.6 The order of priority is determined by the occurrence of priority time such as the earliest of the registration time, the time the SP or another person on behalf of the SP perfects the collateral by taking possession or control of the collateral, and the time the SI is temporarily perfected or perfected by the force of PPSA.7 PPSA also requires a continuous perfection of the collateral for the priority time to be valid.8 ___________________________________________________________________________ 1 Personal Property Securities Act 2009 (Cth), s 12(1). 2 Personal Property Securities Act 2009 (Cth), s 19. 3 Personal Property Securities Act 2009 (Cth), s 21. 4 Personal Property Securities Act 2009 (Cth), s 20. 5 Personal Property Securities Act 2009 (Cth), s 55(3) 6 Personal Property Securities Act 2009 (Cth), s 55(4) 7 Personal Property Securities Act 2009 (Cth), s 55(5) 8 Personal Property Securities Act 2009 (Cth), s 55(6) The Purchase Money Security Interest (PMSI) is an exception to the priority rules in S55 of PPSA. PMSI includes a SI that secures all or part of the collateral’s purchase price and it can be taken by a person who gives value to enable the grantor to acquire rights in the collateral, to the extent that the value is applied to acquire those rights.9 A perfected PMSI has super-priority over a perfected non-PMSI SI that is granted by the same grantor in the collateral or its proceeds.10 Even though the non-PMSI SI has been perfected earlier,

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