One key theme that emerges from the PPSA is the comprehensive protection offered to secured parties. In this regard, security interests continue to be attached to collateral upon sales or leases (transfers) of collateral by the grantor where the transfer generates proceeds¹, unless either:

1. 1. one of the ten (10) extinguishment rules extinguishes the security interest for the benefit of the buyer or lessee; or
   2. the secured party has expressly or impliedly authorised the transfer and released its security interest, or expressly or impliedly agreed that a dealing which gives rise to proceeds would extinguish the security interest². An example of the latter is that circulating assets may be disposed of by a grantor under a circulating security interest (formerly a floating charge).

An example of the extinguishment rules mentioned in paragraph 16.6.1 above is that a buyer of collateral from a seller who conducts a business of selling personal property of that kind and sells in the ordinary course of business (for example, a furniture retailer), will take free of a security interest granted by the seller if the buyer has no actual knowledge that the sale breaches the terms of a security agreement that governs a security interest over the property sold. This is the “sale or lease of personal property in the ordinary course of the grantor’s business” extinguishment rule³. See Chapter 21 (The Extinguishment Rules) for discussion of the extinguishment rules in general.

Continuing with the furniture store example, a customer can buy furniture at a furniture store free of a security interest granted to financiers even though the security agreement may be strictly worded and not permit disposals in the ordinary course of business, so long as the customer does not know that buying furniture breaches the terms of the security agreement.

Customers buying non-serial numbered property from retailers in the ordinary course of their business of selling property of that kind will generally not need to search the PPS Register before buying. This is because only actual knowledge that the sale would be prohibited by the terms of a security agreement (not mere knowledge of the existence of the security interest) would prevent a buyer in these circumstances taking free of a security interest. Security agreements cannot be obtained from the PPS Register by buyers of collateral.

However, the extinguishment rules which relate to serial numbered property (aircraft, watercraft, motor vehicles and certain intellectual property rights) require a search of the PPS Register against the serial number before purchase or lease, except in the case of motor vehicles purchased from a licensed dealer.

See Chapter 21 (The Extinguishment Rules) for discussion.