REALWorld Law

Real estate finance

Priority of security

Is it possible for existing secured debt to become postponed to newly created debt in any circumstances in this country, whether by agreement or otherwise? If so, how does this happen?



The Personal Property Securities Act 2009 (PPSA) regulates the priority position in relation to competing security interests in personal property (as defined under the PPSA) unless otherwise agreed between the relevant lenders. Generally, if an existing secured debt and a newly created debt are both secured by way of registered security interests in all of the borrower’s assets (ie a general security agreement), the existing secured debt will not be postponed if it was registered first in time on the Personal Property Securities register (PPS register).

However, the PPSA also provides that in some very specific circumstances, newly created debt, can take priority over existing secured debt. For example, if a lender has provided funds to a borrower to purchase a specific piece of equipment, that lender may obtain first priority in relation to the piece of equipment for which it has provided finance.

A further exception to the general position relates to statutory charges (for example, charges to secure payment of unpaid land tax), which take priority over existing securities.

The PPSA should always be carefully considered in determining priority.

Priority in relation to existing debt secured by land (which is largely excluded from the PPSA regime) can be postponed by agreement between the security provider and the new and old security holders.  These arrangements are usually documented in the form of a priority deed or inter-creditor deed.  In the absence of such agreement, priority is generally determined by reference to the time of registration of the relevant interest on the title to the land.