In a commercial property finance transaction, there are several types of security taken by a lending
institution to ensure recovery of its capital.

The obvious and main security is a first ranking registered mortgage, commonly referred to as a first
mortgage. Among the other types of security is what is commonly referred to as a PPSR.

The legislation that governs this form of security is, like everything, governed by legislation; in this case
by the Personal Property Securities Act of 2009, referred to as the PPSA.

The PPSA provides a mechanism for the registration of security interests on a central registration as proof  of a debt or obligation which may then be enforced against the debtor party.

A creditor will register its security interest on the register to secure the repayment of a debt or the
performance of an obligation.

The register can be searched by other credit providers to determine the priority of their potential claim,
ie; if the property over which the creditor seeks to register a security interest is already secured by another  creditor and if it is subject to a claim by another creditor.

Should a borrower default on its obligations, the registered creditor may then either exercise its rights  under the credit contract and enforce its security.

In the case when a borrower becomes insolvent and is placed into receivership by another creditor, the
first ranking PPSR secured creditor has the first dip into the proceeds of the sale of the security property
to recover its capital; the subordinated registered creditors would then stand in line according to priority
for the leftovers.

Hence, a lender will protect its capital by registering an interest in the security. This is achieved within
the terms of a security agreement and a registration of its interests on the PPSR.

The PPSR is not just for the use of lending institutions; may also be used by materials suppliers and  wholesalers as part of the way in which they protect payment for the goods that they supply.

There are several types of registrations possible on the PPSR which are for different security types and
purposes. The most common in mortgage lending, and which requires a GSA (General Security
Agreement” to be effective is the, “All present and after-acquired property”, which captures all of a
borrower’s assets in the time of registration (ie; the present) and any that may be acquired in the future;
a little like the old fixed-&-floating company charge.

The PPSA specifies rules of Priority, much like the priority in mortgage law (for a good overview, please
see: In JP’s Kitchen — LINK Commercial Mortgages (linkcm.com.au), watch the video interview and download the  informative discussion paper).

However, under the PPSA, there are priorities of some types of registrations over others with the first
ranking of one type given priority over subsequent, subordinated rankings of the same type of registration,  should there be several of the same type.

Commercial mortgage financiers, such as the tier-1 NBFI clients of LINK, rely on first ranking registered
mortgage over a real property security as the primary security for funds advanced; supplementary security  is taken in the form of a PPSR.

Commercial mortgage finance usually is advanced to a corporate borrower in its own right or as trustee
for a trust. In the case of an incorporated entity borrowing in its own right, the PPSR would be registered
against the company as identified by its ACN; however, where a company is acting as trustee for a
property holding trust, the PPSR would be made against the Trust’s ABN – a comprehensive ASIC search  of an ACN or ABN which includes a search of the PPSR for that number will show a table of registrations.

LINK Commercial Mortgages provides commercial / industrial property investment finance as well as
construction finance to its borrower clients. In all matters since 2009, the security documentation for
such credit facilities has included a PPSR and a GSA. These documents are reviewed by the borrower’s
lawyers and appropriate advice given prior to the borrower signing.

Contact LINK today to find out more about our tier-1 institutional commercial / industrial property
investment finance and specialised project finance for any property transaction that you may be
considering.

Disclaimer

The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or  entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article  is accurate at the date it is received or that it will continue to be accurate in the future.