Perfection is a new concept introduced by the PPSA. It is fundamental to the protection of a secured party’s interest in collateral.
Perfection of a security interest is the process whereby a secured party acquires a ‘priority time’ in relation to competing security interests in the same collateral. Before perfection may occur, the above two steps must be completed, that is the security interest must:
- have attached to the collateral (Attachment Rule 1); and
- be enforceable against third parties (Attachment Rule 2).
Depending upon the type of collateral, perfection may occur by the following:
- registration of a financing statement on the PPSR;
- the secured party takes possession of the collateral (otherwise than by seizure or repossession);
- the secured party has control of the collateral; and
- situations where the Act provides for temporary perfection (where there is a change or transfer or collateral)
It is important to note that while attachment is a pre-requisite to the creation of a security interest, it is not essential for priority. A security interest may be registered on the PPSR by filing a financing statement before attachment has occurred or a security agreement has been entered into.
A registration will be effective from its ‘registration time’, being the moment when the description of collateral becomes available for search on the PPSR in relation to that secured party.
The registration time is important because it forms the basis for determining the priority of security interests perfected by registration. However to be effective, perfection must be continuous.