PPSA - perfecting by possession

Perfecting a security interest under the Personal Property Securities Act 2009 (Cth) (PPSA) is critical step for a secured party to ensure its security interest is not just enforceable against the grantor of the interest, but also against third parties. Perfection can occur by one of three ways: possession, control or registration on the PPS Register. We are all familiar with registration on the PPS Register and the less common method of control only relates to certain types of collateral[1]. However, there is a third method that this article focuses on – perfection by possession.

What is perfection by possession?

Section 21(2) of the PPSA is very clear that perfection by possession of the secured property is, ‘other than as a result of seizure or repossession’. Case law provides guidance on what constitutes perfection by possession. In the case of Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (In Liquidation) (Receivers and Managers Appointed) [2017] FCA 866), Justice Markovic provided the following guidance:

• ‘possession’ has its common law meaning, but that meaning is modified by sections 24(1) and 24(2) of the PPSA ie a secured party must have actual or apparent possession of the collateral and not just a right under the terms of the security agreement to possess the collateral after a default;

• while the appointment of a receiver means the receiver has certain rights to deal with the grantor’s assets over which they have been appointed, this authority in itself does not amount to actual or apparent possession;

• constructive possession is not enough.  

Actual or apparent possession

Section 24 of the PPSA provides that a secured party cannot have possession of personal property if the property is in the actual or apparent possession of the grantor or debtor or another person on their behalf. Likewise, a grantor or debtor cannot have possession of the personal property if the property is in the actual or apparent possession of the secured party of another on their behalf.

What is apparent possession?

The Full Federal Court case of Kirakalocka Gold SPV Pty Ltd (Receivers and Managers Appointed) v Zenith Pacific (KLK) Pty Ltd [2025] FCAFC 62 provides guidance on what constitutes apparent possession. In this case, Kirkalocka operated a gold mine in Western Australia and entered into a Power Purchase Agreement (PPA) with Zenith agreeing to design, construct, operate and maintain an electric power plant at the mine to generate electricity for the mine’s operations. Two years later Kirkalocka entered into administration. The administrators argued that Kirakalocka was the owner of the power plant because the PPA created a PPSA security interest over the plant in favour of Zenith which Zenith had failed to register on the PPS Register or failed to perfect in any other way which meant it vested in Kirkalocka.

The primary judge found that Zenith had a security interest in the power plant and it had perfected its security interest by being in actual and apparent possession of the plant and so the security interest had not vested in Kirkalocka. Kirkalocka appealed the decision to the Full Federal Court. There was no question of whether Zenith held actual possession of the power plant by reason of the terms of the PPA and the manner in which the power plant was operated. Zenith contended that the primary judge was correct with respect to apparent possession but that, even if Kirkalocka was in apparent possession, the effect of section 24(2) of the PPSA was that Kirkalocka cannot be regarded as being in possession at the relevant time because Zenith was in actual possession.

On the question of whether Zenith was in apparent possession of the power plant, the Full Federal Court held:

• apparent possession should be determined from the perspective of an interested creditor looking to inform itself about the personal property the subject of the security interest and who has knowledge of all the apparent facts. As the power plant was in a mine site the Court held that the inquiry must place the hypothetical observer within viewing distance of the power plant;

• the location of the power plant inside the mine was not in itself the determining factor. The Court considered evidence indicating Zenith’s apparent possession such as signage on the inside and outside of the buildings and steps taken by Zenith to restrict access to the facility by those who were not authorised;

• Zenith had apparent possession of the power plant.

It is interesting to note that while it was not strictly necessary to decide the appeal, Zenith was also successful in its argument that the primary judge was in error in deciding that the PPA created a security interest.

Kirkalocka sought leave to appeal from the judgment of the Full Federal Court to the High Court of Australia. That leave application was refused.

Key takeaways

The PPSA provides a regime under which secured parties are able to secure obligations owed to them and secure personal property over which they have taken a security interest. To protect the security against third parties in the event of the insolvency of the grantor, it is important to ‘perfect’ the security interest. The easiest way is via registration on the PPS Register. If there is a gap in timing in registering on the PPS Register or if no registration has occurred, a secured party can perfect its interest by possession or control.

A secured party that believes it has perfected its security interest by ‘possession’, should be aware that it cannot have possession of the property if the debtor or grantor has actual or apparent possession. 

Should you require advice on any aspect of the PPSA, please contact our finance team.

Author: Rebecca Hegarty

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.