- 21.1 The Extinguishment Rules – Introduction
- 21.2 Table Summarising the Extinguishment Rules by Class of Collateral
- 21.3 The Extinguishment Rules - Commentary
- 21.4 Buyer or lessee of personal property subject to unperfected security interests – section 43
- 21.5 Sales or leases of serial-numbered property – motor vehicles, watercraft, aircraft/engines and intellectual property (patents, trade marks, designs and plant breeder’s rights) – section 44
- 21.6 Private sales or leases of motor vehicles – sections 45(1) - (2)
- 21.7 Buying motor vehicles from licensed dealers – sections 45(3) - (4)
- 21.8 Buying or leasing from a seller/lessor in the ordinary course of business – section 46
- 21.9 Low value (below $5,000) consumer property (except serial numbered property) – section 47
- 21.10 Currency – section 48
- 21.11 Prescribed financial markets – investment instruments and intermediated securities – section 49
- 21.12 Investment instruments – section 50
- 21.13 Intermediated securities – section 51
- 21.14 Temporarily perfected security interests – section 52
- 21.15 Returned goods following sale or lease
- 21.16 Subrogation by extinguished secured parties to rights in relation to collateral sold or leased
A buyer or lessee who searches the register immediately before buying or taking a lease of serial-numbered property by reference to the serial number takes the property free from security interests not disclosed by a search against that serial number, subject to the exceptions noted below1. This extinguishment rule operates whether the security interests are granted by the seller or lessor themselves, or by another (previous owner).
The extinguishment rule in section 44 does not apply to transitional security interests during the transition period, being the 24 months following the commencement of the PPSA (the registration commencement time), except for:
(a) security interests over motor vehicles; and
(b) security interests over watercraft,
that are migrated to the PPS Register.
The extinguishment rule in section 44 does not protect a buyer/lessee of serial-numbered personal property if the buyer/lessee themselves holds the personal property they buy or lease as inventory for on-sale or consumption in their business2. Why does this matter? This exception appears to be designed to prevent the rapid extinguishment of security interests in the supply chain for serial-numbered property such as motor vehicles, watercraft, aircraft/ engines and to a lesser extent certain intellectual property rights.
Security interests would be extinguished very quickly if security interests are not correctly registered against serial numbers, and buyers/lessees hold the property bought or leased as inventory for disposal themselves,
and then on-sell or on-lease the property in the course of their businesses. The other policy driver here is that large commercial parties (such as traders who buy inventory for on-sale) are better placed to carry out any necessary diligence on the property they buy and protect themselves, so they are not protected by many of the extinguishment rules.
The extinguishment rule in section 44 bears out the importance for secured parties of ensuring that their security interests are correctly registered against serial- numbered property. The golden rule of “search, register, search”3 could not be more apt. That is, secured parties should:
(a) search the PPS Register to ensure there are no security interests over property before taking a security interest;
(b) register their security interest to lock-in a priority time;
(c) then search the register again to ensure their security interest is correctly registered, including against the serial numbers of serial numbered property; and
(d) only then, lend money or extend credit.
Motor vehicles are a special category of serial numbered property and there are additional rules for them – see below.
