When a debtor company fails, unsecured creditors frequently recover cents in the dollar — if anything at all. But creditors who have properly registered their security interests under the Personal Property Securities Act 2009 (Cth) (PPSA) stand in a fundamentally different position. They are secured creditors. Their security interest takes priority over the claims of unsecured creditors and, in many cases, over the liquidator’s own rights.
The problem is that many Queensland creditors — trade suppliers, equipment lessors, financiers, and businesses that extend credit — either don’t register at all, or register incorrectly. When insolvency strikes, those mistakes can be catastrophic and irreversible.
This guide explains how the PPSA and insolvency interact, what creditors in Queensland need to do to protect themselves, and what happens to your security interest when a debtor company enters voluntary administration, receivership, or liquidation.
What Is the PPSA?
The Personal Property Securities Act 2009 (Cth) established a single national register — the Personal Property Securities Register (PPSR) — for security interests over personal property (everything except land). It replaced the fragmented patchwork of state-based chattel mortgage registers, ASIC’s charges register, and various other registration systems that existed before 2012.
Under the PPSA, a “security interest” includes:
- Fixed and floating charges
- Chattel mortgages
- Hire purchase agreements
- Finance leases (where the term exceeds the economic life of the goods)
- Retention of title (ROT) clauses — also called Romalpa clauses
- Consignment agreements
- Leases of goods for more than one year (or of indefinite duration)
- Floorplan finance arrangements
Registration on the PPSR gives your security interest priority over unregistered interests and, critically, over a liquidator acting for the general body of unsecured creditors.
Why PPSA Registration Matters So Much in Insolvency
When a company enters liquidation or voluntary administration, the insolvency practitioner takes control of the company’s assets. Their job is to collect assets and distribute them to creditors in the order set by law.
The order of priority under the Corporations Act 2001 (Cth) broadly runs:
- Secured creditors (to the extent of their security)
- Employees (for priority entitlements — wages, superannuation, leave)
- Unsecured creditors
- Members/shareholders
If you have a properly registered and perfected security interest under the PPSA, you are in category one. You have the right to enforce your security interest (by repossessing and selling the collateral) independent of the insolvency process — subject to certain limited protections available to administrators and receivers.
If your security interest is not registered, or is defective, you are almost certainly in category three — an unsecured creditor who takes what’s left after everyone else has been paid. In a typical Queensland liquidation, that often means recovering nothing.
Perfection: The Critical Concept
Under the PPSA, a security interest must be perfected to achieve maximum priority. Perfection requires:
- Attachment — the security interest has attached to the collateral (the agreement is in place, value has been given, and the grantor has rights in the collateral)
- Enforceability — the security agreement is in writing and signed (or otherwise meets the PPSA requirements)
- Registration or possession — the security interest is registered on the PPSR, or the secured party has possession or control of the collateral
For the vast majority of commercial arrangements, registration on the PPSR is the only practical means of perfection. And that registration must be done before the debtor enters insolvency.
Retention of Title Clauses: A Common and Costly Mistake
Trade suppliers frequently include retention of title (ROT) clauses in their standard terms and conditions. The intention is clear: “the goods remain our property until you pay for them.” Before the PPSA, ROT clauses operated largely as advertised — a supplier could reclaim unpaid-for goods from a buyer who hadn’t yet paid.
Under the PPSA, a ROT clause is a security interest. It must be registered on the PPSR to be enforceable against a liquidator or administrator. If it is not registered, the liquidator can treat the goods as company assets and sell them for the benefit of all creditors — leaving the supplier as an unsecured creditor for the unpaid price.
This has been a particularly harsh outcome for Queensland trade suppliers in the construction sector, where a head contractor’s insolvency can leave dozens of material suppliers with large unpaid invoices and no recourse to their own goods because they failed to register.
The lesson: if your terms and conditions include a ROT clause, it means nothing unless you register it on the PPSR.
What Happens to PPSA Security Interests When a Company Enters Voluntary Administration?
When a company enters voluntary administration, an automatic moratorium (freeze) applies under s440B of the Corporations Act. This prevents most secured creditors from enforcing their security interests during the administration period without the administrator’s consent or a court order — except secured creditors who hold a “security interest” in the whole, or substantially the whole, of the company’s property (typically a receiver appointed by a bank holding an all-assets security).
The moratorium lasts for the duration of the administration — typically a matter of weeks while the administrator investigates and presents options to creditors. After the creditors’ meeting, the company will either:
- Execute a Deed of Company Arrangement (DOCA)
- Return to the directors’ control
- Go into liquidation
If the company enters a DOCA, secured creditors are generally not bound by the DOCA unless they vote in favour of it or a court orders otherwise. Your security interest survives and can be enforced once the moratorium lifts.
What Happens in Liquidation?
In liquidation, a properly perfected PPSA security interest gives you significant rights:
- Priority over the liquidator: The liquidator steps into the shoes of the company — they cannot claim assets subject to a perfected security interest for the general pool of creditors
- Right to enforce: You can appoint a receiver or take possession of and sell the collateral, subject to the automatic moratorium that applies during voluntary administration (but not, generally, during liquidation itself)
- Surplus after enforcement: If you enforce your security and the sale proceeds exceed the debt owed, the surplus goes to the liquidator for distribution to unsecured creditors
However, your priority is not absolute. Voidable transactions provisions in the Corporations Act (ss 588FA–588FJ) can allow a liquidator to attack security interests granted in the six months before insolvency if they constitute an unfair preference or uncommercial transaction. If the security interest was granted to a related party of the company, the relation-back period extends to four years.
Common PPSA Mistakes That Cost Creditors Their Priority
Queensland creditors regularly lose priority due to avoidable registration errors. The most common include:
1. Not Registering at All
Many businesses have ROT clauses in their terms and conditions but have never registered anything on the PPSR. The clause is worthless against a liquidator without registration.
2. Registering Against the Wrong Grantor
If you register against the wrong ACN or ABN, or against a related entity rather than the actual debtor company, your registration may not attach to the correct grantor. Search results won’t show your interest, and courts may not treat it as effective.
3. Describing the Collateral Incorrectly
The PPSA requires collateral to be described by class or serial number. An overly vague description (e.g., “all goods supplied”) may be ineffective for serial-numbered collateral such as motor vehicles or boats.
4. Allowing Registration to Lapse
PPSR registrations expire. A registration that lapses before the debtor enters insolvency leaves you unprotected. Maintain a calendar of registration expiry dates and renew in advance.
5. Registering After the Debtor Enters Insolvency
Registering on the PPSR after the debtor has entered voluntary administration or liquidation is too late. The critical moment is perfection before insolvency.
6. Confusing an All-PAP Registration With a Specific-Assets Registration
An “all present and after-acquired property” (All-PAP) registration covers everything the debtor has or acquires. A specific collateral registration covers identified assets. Registering only specific assets when you intended All-PAP (e.g., for a chattel mortgage over a business) leaves gaps in your security.
What to Do When You Receive Notice of a Debtor’s Insolvency
When you receive a notice that a debtor company has entered voluntary administration, receivership, or liquidation, act immediately:
- Check your PPSR registration — confirm it is current, correctly names the grantor, and accurately describes the collateral
- Check the timing — confirm your registration predates the insolvency commencement
- Identify your collateral — determine what goods or assets are subject to your security interest and where they are located
- Notify the insolvency practitioner in writing — assert your security interest clearly and promptly
- Get legal advice immediately — the moratorium periods are short, and your right to enforce depends on acting correctly
- Lodge a proof of debt — even if you are a secured creditor, lodging a proof of debt preserves your right to participate in distributions for any shortfall after realising your security
Time is critical. The voluntary administration moratorium is typically short. Missing the window to assert your secured creditor rights can result in your collateral being sold by the administrator or liquidator as an unencumbered asset.
PPSA Priority Rules: Which Registration Wins?
Where multiple creditors hold security interests over the same collateral, priority is determined by the PPSA’s priority rules (Part 2.6). The general rule is that the first to perfect wins. But there are important exceptions:
- Purchase Money Security Interests (PMSIs) have super-priority over general security interests, provided they are registered within the PPSA timeframes (generally within 15 business days of the debtor taking possession of the collateral). A PMSI is the security interest of a supplier who sold the goods on credit, or a financier who lent money specifically to acquire the collateral.
- Control (for certain financial property) beats registration
- Specific rules apply to collateral types such as motor vehicles, watercraft, and intellectual property
If you are a trade supplier who extended credit for specific goods, registering as a PMSI within the timeframe gives you super-priority even over a bank holding an All-PAP security. This is a significant advantage worth understanding.
Practical Steps for Queensland Creditors
If you extend credit to other businesses — whether as a trade supplier, equipment lessor, or financier — take these steps now:
- Review your standard terms and conditions — ensure they include a properly drafted PPSA security clause and PMSI clause where applicable
- Establish a PPSR registration process — register new customers before delivering goods or extending credit
- Diarise renewal dates — set calendar alerts at least 60 days before registration expiry
- Search before you supply — conduct a PPSR search on a new customer to understand their existing security obligations and flag potential priority issues
- Get a PPSA health check — have your registration process audited by a commercial lawyer to identify gaps before insolvency makes them irreversible
How Boss Lawyers Can Help
At Boss Lawyers, we regularly act for secured and unsecured creditors in Queensland insolvency proceedings. We assist creditors with:
- Reviewing and rectifying PPSR registrations
- Advising on priority disputes between secured creditors
- Asserting security interests against liquidators and administrators
- Challenging liquidator decisions to treat purportedly secured assets as company property
- Negotiating with insolvency practitioners to recover secured assets
- PPSA audits for trade creditors and financiers
If you have received notice that a debtor has entered insolvency and you believe you may hold a security interest, contact us immediately. Time is of the essence.
For more on related topics, see our guides on insolvency law in Queensland, options for an insolvent business, and retention of title clauses.
This article contains general information only and is not legal advice. You should obtain professional advice specific to your circumstances. Contact Boss Lawyers on 1300 267 711 or visit bosslawyers.com.au.
