Retention of Title Clauses and the Registration of Security Interests on the PPSR as a PMSI

Retention of Title Clauses and the Registration of Security Interests on the PPSR as a PMSI

When a business sells goods there are many ways to structure payment. JHK acts for a number of clients who have agreed to supply goods to their customers on credit. This can often be commercially advantageous to our clients, but carries risk.

To manage that risk, we often advise our clients in such a position to consider Retention of Title clauses and the registration of security interests on the Personal Property Securities Register (“PPSR”) as a Purchase Money Security Interest (“PMSI”).  Belinda Pinnow of our office has previously written about how the PPSR can provide protection to creditors in the event of their debtor’s insolvency.

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Please note that this article provides an overview only. Retention of Title clauses and the registration of security interests on the PPSR as a PMSI can be complex, and need to be tailored to individual circumstances.  This article is not intended as a substitute for independent legal advice.

How Retention of Title Works

Retention of Title clauses provide that title in goods delivered to the customer remains with the supplier until they have been paid for in full. Commonly these clauses will:

  • Prohibit the customer from dealing with the goods other than selling them in the ordinary course of business at market value. If the customer wrongfully sells or disposes of the goods, then they are required to hold the proceeds on trust for the Seller;
  • Provide the supplier with certain rights over the goods, such as the right to recover possession at any time, including entering premises where the goods are believed to be stored;
  • Address what happens if the customer converts, processes or mixes the goods with other goods.

In usual circumstances, the customer will provide security to the supplier in the form of a charge.

Including these clauses in a contract is not sufficient to secure your interest. For this, you need to register it on the PPSR as a PMSI. Care must be taken when preparing to contract to ensure that it has the appropriate clauses to allow for such registration.

What is the PPSR?

The PPSR is a national system that records security interests in personal property. For a small fee, anyone can search the register.

“Personal property” is a wide category and includes most assets of a business such as stock, equipment, and motor vehicles. It also extends to intangible property such as intellectual property (“IP”) and debts owed to the business.

However, “personal property” does not include any interest in land or buildings, which under law are considered “real property”.

Why is this important to register your interests on the PPSR?

If the customer enters liquidation or receivership, there is a very real risk that any goods in the possession of the customer (whether they have been paid for or not) could be seized by a liquidator or receiver and sold to pay other creditors.

As outlined in Belinda Pinnow’s article, it is necessary to perfect security interests to obtain protection in the event of a debtor’s insolvency, and PPSR registration is one element of this.

The cost of registering most interests on the PPSR is very modest compared to the protection it provides.

PPSR registrations can be technical. Minor mistakes can result in a registration being ineffective.

What is a PMSI?

Generally, the PPSR operates on a “first in, best dressed” principle, with earlier registered security interests prevailing over later ones.

PMSIs are an exception. Certain interests deemed to be PMSIs under the Personal Property Securities Act 2009 (“PPSA”) can obtain a “super priority” over other registered interests, even if registered afterwards. Retention of title is one way that a PMSI may arise.

It is important to note that there are strict timeframes to obtain this “super priority”. Under Retention of Title arrangements, the applicable rule is that the PMSI must be registered before the customer obtains possession of the goods. Note that it is not necessary to make registrations each time goods are to be supplied – one registration can cover ongoing arrangements.

While powerful, PMSIs themselves can be trumped in some circumstances – such as when debt factoring financiers enter the picture under section 64 of the PPSA.


When selling goods on credit to customers, it is important to consider retention of title clauses and the registration of security interests on the PPSR as PMSI to protect your interests.

If you require any assistance with the drafting contracts for the sale of goods or the lodgement of security interests on the PPSR, please contact JHK Legal.

Matthew Paul



PPSR Protection in the Event of Insolvency

What has happened to my security interest?

 As a creditor, the primary purpose of obtaining security over personal property is to have recourse against that secured property in the event of default by the debtor.  Any creditor relying on security interests must understand the impact of the PPSA and, moreover, ensure that their security interests are properly perfected to achieve the maximum protection possible in the event of the insolvency of the debtor.

This article discusses the interaction of the Personal Properties Securities Act 2009 (Cth) (PPSA) (the Act) with existing corporate and personal insolvency laws, largely governed by the Corporations Act 2001 (Cth) (the Corp Act) (for corporate insolvency) and the Bankruptcy Act 1966 (Cth) (the BA) (for personal insolvency).  It is noted from the outset that the PPSA does not have the effect of limiting the operation of existing corporate and personal insolvency law, it merely prevails in the event of any inconsistency: see s264 PPSA.

Whether you are entitled to enforce your security interest on the debtor’s insolvency depends on whether you have perfected your security interest.  The failure to perfect a security interest prior to the commencement of select insolvency proceedings will render the security interest, ineffective: see s267 of the PPSA.  Section 267 of the PPSA applies where a debtor:

  1. is placed in liquidation;
  1. is placed in voluntary administration;
  1. enters into a Deed of Company Arrangement; or
  1. is placed into bankruptcy either voluntarily or by sequestration order.

(insolvency proceedings)

In the case of a corporate debtor, there is an additional criteria imposed by section 588FL of the Corp Act, that is, if the creditor is perfecting its security interest by registration on the Personal Properties Securities Register (PPSR) that registration must have occurred no later than twenty (20) business days after the date of the security agreement or six months prior to the commencement of the insolvency proceedings against the corporate debtor.  Failure to register within the first twenty business days should not deter creditors from registering security interests as after the expiration of six months from the date of registration, the security interest will survive the appointment of liquidators, administrators or trustees.

Any unperfected security interest vests in the grantor (being the provider of the security interest to the creditor, most commonly, the debtor) on insolvency pursuant to section 267(2) of the Act.  Essentially, all this means is that on insolvency the secured property, free of the security interest, vests in the debtor for use by the appointed liquidator, administrator or trustee in bankruptcy (as applicable) or, put another way, the security interest becomes ineffective.

So how do you protect your security interest?  By perfection of your security interest.

Creditors need to be diligent in perfecting their security interests, which means that they need to do all that they can possibly do to protect their security interest from other competing security interests.

A security interest is generally perfected where:

  1. it is enforceable against a third party, that is, one of the following applies:

a. the creditor has possession of the property secured; or

b. the creditor has control of the property secured; or

c. there is evidence of a security agreement in writing between the creditor and the debtor which the debtor has adopted by signing or its actions and which sets out the details of the property secured and the creation of the security interest; and

2. one of the following applies:

a. the security interest is registered on the PPSR; or

b. the creditor has control of the property (other than by seizure or repossession); or

c. the creditor has control of the property (for example, in the case of bank accounts, the creditor has control of that account).

This is just a snapshot of what is a broad area of law and it is not intended that this article substitute for tailored legal advice particular to your circumstances.

If you need any assistance with any insolvency or PPSA related queries, please do not hesitate to contact JHK Legal.

Belinda Pinnow

Senior Associate