The Act encourages secured parties to perfect their security interests. As a general rule, the Act adopts a ‘first in time’ rule to priority disputes. This means:
- priority between two unperfected security interests is determined by order of attachment; and
- priority between two perfected security interests is determined by order of the ‘priority time’;
Perfected security interests have priority over unperfected securities and perfection by control has priority over perfection by any other means.
For two perfected security interests, the ‘priority time’ is the ‘registration time’. A registration is effective from the moment it becomes available for search on the PPS Register. It is important to reiterate that a security interest may be registered before attachment and before the existence of a security agreement. Once the requirements for perfection are satisfied, the priority time is effectively backdated to the ‘registration time’ provided perfection has been continuous. The first secured party to register its security interest will then have priority.
The first-in-time priority rule is subject to one significant exception – purchase money security interests.