Priority Creditors

The below diagram highlights the importance of perfecting your security interests, particularly in the context of insolvency.

Perfecting your security interest ensures that you are better placed to recover your asset (or a percentage value of it) in the event of insolvency as you will be placed in the prior (higher) “secured creditors” category.

All creditors in a prior category will be paid out before distributions are made to the next category of creditors. Once the assets are insufficient to discharge all creditors’ debts in the current category a proportionate distribution will be made to those creditors.

Please contact Walker & George to discuss managing, perfecting and enforcing your security interests.

What are Security Interests?

The Personal Property Securities Act 2009 (NSW) (the PPSA) section 12 defines a security interest as “an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation.” This section also provides a helpful list of examples of a security interest.

Section 21 of the PPSA then deals with how to perfect your security interest to ensure you are a priority, secured creditor.

In order for a security interest to be perfected it must be:

  1. attached – attachment occurs when the party granting security has rights (or the power to transfer rights) in the property and does an act (for example executing a security agreement) that creates the security interest;
  2. enforceable against a third party – a security interest is enforceable once it is attached and either the secured party is in possession or control of the property or the security interest has been registered; and
  3. registered and, or in possession or control of the secured party.

As is shown by the above, steps 2 and 3 are interconnected and mutually reinforcing.

Regardless of the security interest and the property, all security interests should be registered on the Personal Property Securities Register at a minimum.

Please contact Walker & George to discuss managing, perfecting and enforcing your security interests.