The problem with many forms of personal property, as opposed to land, is that it is difficult to ascertain who owns it, or whether it is encumbered. This is often because there is no register to search. True, there are registers for certain forms of personal property, for instance, cars and ships. But those aside, there is often no register for personal property on which either ownership, or encumbrances, can be noted. There must be sufficient reason to go to the cost and trouble of creating a register for security interests over personal property. That is precisely what Australia is doing by enacting the PPSA – why?

The major reason for going to the trouble of creating a non-ownership register for security interests in relation to most personal property is to address the problem of apparent ownership¹. Possession or control over property implies ownership to the world at large. However, if persons in possession or control of property (grantors) look like owners, but actually have granted security interests to others (secured parties), creditors dealing with such grantors risk making a loan or extending credit without knowing that the grantor’s assets are already encumbered to others. Creditors in these situations may mis-judge the creditworthiness of the grantor. This is often called the problem of apparent ownership.

The problem of apparent ownership has been long recognised in secured transactions, especially in relation
to personal property where the risk of apparent ownership misleading creditors is perhaps the greatest. The company charges system in Chapter 2K of the Corporations Act 2001 (Cth) sought to address the problem of apparent ownership in relation to personal property security to some extent. It provided for a limited registration system for mortgages and charges (only) granted by companies over various forms of personal property, including book debts, chattels, intellectual property and certain other property.

The Corporations Act 2001 (Cth) company charges system did not cover transactions:

The PPSA is an attempt to create a single national register for personal property secured transactions which more comprehensively addresses the apparent ownership problem in respect of personal property, to protect creditors.

The PPSA aims to bring all financing transactions to the light of day. In particular, previously silent financing transactions such those listed at (A) and (B) in paragraph 15.1.4 above, and most other transactions of whatever form which in substance grant an interest in personal property to secure an obligation, must all be perfected under the PPSA.

Perfection will make these transactions visible, either through registration on the PPS Register which permits others to search for them, or otherwise made visible by secured parties perfecting their security interests by taking possession or control of the collateral over which they hold security interests. Perfection will go a long way to address the apparent ownership problem.