Perfection is required to make security interests strong against third parties. Perfection is a general way to refer to predominantly three ways (registration, possession and control) in which a secured party can “advertise its security interest to the world” to put others on notice that they should be careful before taking an interest in the collateral.

The PPSA also extends temporary perfection (a fourth avenue of perfection) for certain periods to some classes of security interests and collateral, the best example of which is transitional security interests.

Transitional security interests are security interests that arise under security agreements entered into before the PPSA is anticpated to commence in early 2012. Transitional security interests benefit from automatic temporary perfection for two (2) years until early 2014, to allow secured parties under them time to actually perfect under the new PPSA system.

The very reason (policy) for all personal property secured transactions systems, including the PPSA, centres around perfection. The policy is to alert others to the state of encumbrance of a debtor’s or grantor’s assets, so that others can deal with them on an informed basis and assess their credit-worthiness before lending money or extending credit.

This is sometimes referred to as the apparent ownership problem¹. The problem arises because debtors/grantors look like they own personal property in their possession or under their control. This could fool others into extending credit against the personal property in the possession or under the control of a grantor, unless there is a way to discover whether these assets are encumbered.

See Chapter 15 (Why the PPSA?) on the policy of the PPSA for further discussion about apparent ownership.

The perfect diamond below represents perfection of security interests under the PPSA. Perfection makes security interests strong (as perfect as they can be) against other competing security interests and other interests in the same collateral.