To be effective, a security interest must “attach” to the “collateral” it is said to effect. “Collateral” is the term used in the PPSA for the personal property that is used as security, which may be such things as goods, shares, intellectual property or money in a bank account. A security interest can only attach if the grantor has the power to grant an interest in the collateral. There must also be either the payment of consideration or the making of some other act (such as executing a security agreement) to attach the interest.

To be enforceable against the grantor, the security interest must attach to the collateral. To be enforceable against a third party, the security interest must also be accompanied by possession or control of the collateral by the holder of the secured interest (“the secured person”) or be recorded in a security agreement.

Another important concept under the PPSA is “perfection” of a security interest. To be perfected, a security interest must be enforceable against a third party and also needs to be registered or the secured person needs possession or control over the collateral. Registration is effected by lodging a “financing statement” which is recorded on the register.

In some circumstances, the purchase of collateral by a buyer will remove the security interest from the property. One instance of this is when the security interest had not been perfected at the time of sale.

There are some specific priority rules for specific types of property or situations, but generally speaking the following rules apply in relation to priorities between security interests. A perfected security interest has priority over an unperfected interest. Priorities between unperfected interests are resolved according to the date of attachment, and priorities between perfected interests as to the date of perfection, in each case the earlier date conferring priority. See Concepts and priorities.

There is no strict need to have a security agreement to create a security interest, but generally it will be in the secured person’s interest for such an agreement to be drafted. The agreement needs to be in writing, be signed or otherwise accepted by the grantor, and specify the collateral. If the agreement is also governed by the National Credit Code in Sch 1 of the National Consumer Credit Protection Act 2009 (Cth), that will affect the way in which the collateral can be described.

The terms to be included in the security agreement are likely to be broadly similar to those in mortgages over land, but there are some specific matters to consider in relation to security agreements. See Drafting personal security agreements.

Security interests are normally enforced by the secured person seizing the collateral. This usually involves physically taking possession and removing the collateral, but if the collateral is intangible, cannot be easily moved, or is already in the secured person’s possession or under its control, then seizure is accomplished by notice.

After the collateral is seized, the secured person can choose to sell it and use the proceeds to repay the secured debt, or can cancel the debt in exchange for being able to retain the collateral. These actions are subject to notice provisions, and either the grantor or priority security holders can intervene to prevent some courses of action. The National Credit Code contains a number of provisions regulating goods mortgages, and if a security interest is also governed by the Code these provisions will need to be observed. See Enforcement.